Triangle 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.

The declining bline 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.


The ascending triangle consists of flat resistance line and a rising support
line. 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.


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. 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. 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-pip difference between 1.5000 and 1.4000, measured from 1.4000.


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 itsbase. 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.