Using Triangle Patterns to Determine Price Movement
by Wayne A. Thorp, CFA
Pick up any text on technical analysis and charting and you are likely to come across some discussion of price patterns and their potential use in trading. One pattern that appears quite frequently is the triangle.
In this article
- triangle types
- Right Triangles
- Ascending Triangles
- Volume Confirmation
- Descending Triangles
- Symmetrical Triangles
- price targets
- too good to be true?
- Conclusion
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triangle types
In general terms, a triangle is formed by the convergence of two trendlines drawn on a price chart. One trendline connects the price peaks and one connects the price troughs of a security. Therefore, at least two points (peaks or troughs) are needed between which the trendline is drawn. Over time these peaks and troughs narrow and, depending on the price behavior, the triangle pattern may or may not be confirmed. Triangles come in several forms and can take on different names, but the most common are right triangles and symmetrical triangles.
Right Triangles
For any triangle, there are two sides that are important—the upper and lower boundaries. With the right triangle, one side or boundary, either the top or bottom, is roughly horizontal while the other slopes either upward or downward. Whether the slope is upward or downward gives an indication as to the type of right triangle—ascending or descending.
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