TAGS:Triangle Formation,expanding triangle,Trading volume,descending triangle,typical ascending triangle,symmetrical triangle,bullish symmetrical triangle,Flag formation AND Pennant formation,Wedge Formation and Rectangle Formation
Triangle Formation
Triangles can be visualized as pennants with no poles. There are four types of triangles: symmetrical, ascending, descending, and expanding (broadening).
A symmetrical triangle consists of two symmetrically converging support and resistance lines, defined by at least four significant points. (See Figure 5.25.) The two symmetrically converging lines suggest that there is a balance between supply and demand in the foreign exchange market. Consequently, a break may occur on either side. In the case of a bullish symmetrical triangle, the breakout will occur in the same direction, qualifying the formation as a continuation pattern.
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| Figure 5.25. A market example of a bearish pennant |
As Figure 5.26. shows, the converging lines are symmetrical. The declining line is defined by points B, D, and F. The rising support line is defined by points A, C, E, and G. The price target is either (1) equal to the width of the base of the triangle BB', measured from the breakout point H (HH'); or (2) at the intersection of line BI (which is a parallel line to the rising line AG) with the price line.
Trading volume will visibly decrease toward the end of the triangle, suggesting the ambivalence of the market. The breakout is accompanied by a rise in volume.
In the numerical example, the price objective is either 1.5500, as the difference between 1.5000 and 1.4000, measured from 1.4500 or 1.5300, as the difference between 1.5000 and 1.4000, measured from 1.4300.
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| Figure 5.26. shape1 Diagram of a bullish symmetrical triangle |
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| Figure 5.26. shape2 Diagram of a bullish symmetrical triangle |
The ascending triangle consists of flat resistance line and a rising support line. (See Figure 5.27.) The formation suggests that demand is stronger than supply. The breakout should occur on the upside, and it consists of the width of the base of the triangle as measured from the breakout point. As you can see in Figure 5.28., the resistance line defined by points A, C, and E is flat. The converging bottom line, defined by points B, D, and F, is sloped upward. The price objective is the with of the base of the triangle (AA') measured above the resistance line from the breakout point G (GG'.) In the numerical example, the price objective is 106.00, as the 200-pip difference between 105.00 and 103.00, measured from 104.00.
Trading volume is decreasing steadily toward the tip of the triangle, but increases rapidly on the breakout.
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| Figure 5.27. An example of a symmetrical triangle |
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| Figure 5.28. shape1 Diagram of typical ascending triangle |
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| Figure 5.28. shape2 Diagram of typical ascending triangle |
The descending triangle is simply a mirror image of the ascending triangle. It consists of a flat support line and a downward sloping resistance line. (See Figure 5.29.) This pattern suggests that supply is larger than demand. The currency is expected to break on the downside. The descending triangle also provides a price objective. This objective is calculated by measuring the width of the triangle base and then transposing it to the breakpoint. As shown in Figure 5.29., the support line, defined by points A, C, E, and G, is flat. The converging top line, defined by points B, D, F, and H, is sloped downward. The price objective is the width of the base of the triangle (AA'), measured above the support line from the breakout point I (IF.)
In the numerical example, the price objective is 1.3000, as the 1000-pipdifference between 1.5000 and 1.4000, measured from 1.4000.
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| Figure 5.29. shape1 Diagram of a descending triangle |
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| Figure 5.29.shape2 Diagram of a descending triangle |
Trading volume is decreasing steadily toward the tip of the triangle, but increases rapidly on the breakout.
The expanding (broadening) triangle consists of a horizontal mirror image of a triangle, where the tip of the triangle is next to the original trend, rather than its base. (See Figure 5.30.) Volume also follows the horizontal mirror image switch and increases steadily as the chart formation develops. As shown in Figure 5.30, the bottom support line, defined by points B, D, and F, and the top line, defined by points A, C, and E, are divergent. The price objective should be the width, GG', of the base of the triangle, measured from the breakout point G.
In the numerical example, the price objective is 102.00, as the 100-pip difference between 101.00 and 100.00, measured from 101.00.
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| Figure 5.30. shape1 Diagram of an expanding triangle |
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| Figure 5.30. shape2 Diagram of an expanding triangle |
Do you like to read about others Trend Continuation Patterns like Flag formation AND Pennant formation
click here or Wedge Formation and Rectangle Formation
click here
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