A triangle chart pattern involves price moving into a tighter and tighter range as time goes by and provides a visual display of a battle between bulls and bears.
The triangle pattern is generally categorized as a “continuation pattern”, meaning that after the pattern completes, it’s assumed that the price will continue in the trend direction it was moving before the pattern appeared.
A triangle pattern is generally considered to be forming when it includes at least five touches of support and resistance.
For example, three touches of the support line and two for the resistance line. Or vice versa.
Just like there are three little pigs, there are three types of triangle chart formations: symmetrical triangle, ascending triangle, and descending triangle.
Symmetrical Triangle
A symmetrical triangle is a chart formation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle.
This means that neither the buyers nor the sellers are pushing the price far enough to make a clear trend.
If this were a battle between the buyers and sellers, then this would be a draw.
This is also a type of consolidation.
In the chart above, we can see that neither the buyers nor the sellers could push the price in their direction. When this happens we get lower highs and higher lows.
We don’t know what direction the breakout will be, but we do know that the market will most likely break out. Eventually, one side of the market will give in.
So how can we take advantage of this?
Simple.
We can place entry orders above the slope of the lower highs and below the slope of the higher lows of the symmetrical triangle.
Since we already know that the price is going to break out, we can just hitch a ride in whatever direction the market moves.
In this example, if we placed an entry order above the slope of the lower highs, we would’ve been taken along for a nice ride up.
.... Maybe those tea leaves were on the money.
