Identifying a price pattern is a very important process while you are predicting future market price.
What is Triangles Chart Pattern?
The examples of classical chartist figures are repeated over and over again in time. Let’s see some examples of one of the most followed patterns: Triangles, by David Galán.
The chartist analysis is part of the technical analysis that studies the price movements. Those figures that makeup prices and that repeat themselves historically are called chartism. Each figure has different connotations and serves to warn whether the dominant trend is going to continue or there may be a change in it. In addition, most chart figures are used to set price targets.
Within the chart analysis, one of the most common figures is the triangles. Triangles can be divided into several categories:
1. The symmetrical triangle
The symmetrical triangle, where the two main lines that form it, together with the base of it, have opposite tendencies. In other words, it is made up of a bullish and bearish guideline. The movement of prices, as in all triangles except in the case of the expansive one, decreases little by little as it approaches the vertex. They suppose a drop in volatility until it finally breaks down some of its parts. These types of triangles can be broken in both directions, although the triangle is usually a figure of consolidation and continuity of the previous trend. The target on all triangles is activated by projecting the height of the triangle (the widest part of the triangle) from the breakpoint.
2. The ascending triangle
It is made up of a horizontal resistance line and a bullish guideline; the price is making increasing lows within the triangle. These types of triangles are usually broken on the upside most of the time.
3. The descending triangle
It is formed by a horizontal line that works as a support and a bearish guideline, the price is making decreasing highs within the triangle. These types of triangles tend to break downward most of the time.
4. Expansive triangle
It is a type of triangle where prices, instead of decreasing, are expanding, hence its name. They tend to appear more commonly within downtrends since they involve an increase in volatility. They are the only triangles that do not provide any specific purpose.
They are triangular figures, where the two lines have the same direction and have a clear particularity. The rising wedge, (with the two bullish lines) has bearish implications and the falling wedge, (with the two bearish lines) has bullish implications.
How to find the Triangles in any market
It is not difficult to find triangles in any market.
We can see a very clear triangular figure, (indicated in green), in this case, a symmetrical triangle, which we were talking about during the end of 2011 and whose objective of 20% increase.
It was activated in January 2012 with a theoretical objective of 4.82 euros, which was finally met.
In the case of Gas Natural, we can see another clear triangular figure, another symmetrical triangle, (indicated in blue), with pullback included, once the bullish guideline of the triangle is broken goes from being a support to being resistance, a figure discussed at the end of 2011 and at the beginning of this year, whose target of 9.16 euros was activated in the month of March and which was fulfilled during this month of May.
Although it is true that triangles are usually figures for the continuation of the trend and that they are also usually figures that are formed during a not too long time, in the following Indra graph, we see how it is a descending triangle, which serves to change the trend of security in the medium term.
It is a gigantic triangle that we have been commenting on from the General Stock Exchange, since September 2011. By losing the 12 euros we have been insisting that everything indicates that Indra will fall towards 5.30 euros to meet the tremendous downward objective of this clear triangular figure, in this case descending triangle, (indicated in red).
In the following example from Santander, we see two triangular figures. In the first place, an ascending wedge, with bearish implications, (indicated in red) that we discussed during the end of 2009 and that was activated in January 2010, causing the value to fall.
Later we can see a large triangular figure in Santander, in this case, a descending triangle (indicated in blue) formed during a good part of 2010 and 2011 and whose ambitious downward objective would take the value towards levels of 3.56 euros approx. Little by little the courage walks towards the indicated objective.
We have seen the example of an ascending wedge with bearish implications, now we will see the opposite case, a descending wedge with bullish implications that was formed in Inditex during the beginning of 2011 (which I indicate in blue) and whose target towards 54.68 euros is it delivered perfectly just a few weeks after being activated.
And to finish this review of the triangular figures, we can see the graph of the Ibex, similar to that of Santander, with an ascending wedge during the end of 2009 and activated in January 2010, discussed at the time and which caused sharp falls. Finally, a large triangular figure, with a descending triangle, (indicated in green), which was formed during a good part of 2010 and 2011 and whose downward target towards 7,560 points, was perfectly fulfilled a few months after being activated.
6 Main Price Patterns to identify Market Trend
A price pattern is a series of candlesticks which indicate the possibility of a trend, as well as market volume in general structure.
Pattern identification is a common technique used by many traders, and helps in identifying reversals and price direction.
The following are a number of price patterns.
1. Head and Shoulders
This is considered one of the most reliable and well-known patterns. Pattern indicates the end of the trend and includes of peak that is surrounded both sides by lower peaks, less of the same height.
In an uptrend, this pattern provides an important reliable sign indicating the end of the current trend and the beginning of a new one.
A support line is drawn below the three peaks which serves the base of the pattern and it’s called the neckline.
In many cases, the pattern repeat and reverse indicate the end of a downtrend.
2. Double tap
This pattern is created when the price climbs to the same price level that established the previous peak.
This pattern is considered less reliable than the head and shoulders pattern.
In order to increase the reliability of the pattern, a time frame of at least one week should exist between the two peaks.
3. Double bottom
This pattern is created when the price falls to the same price level that established the previous troughs.
4. Key reversal
This pattern includes three criteria.
In an uptrend, at least three consecutive rising candlesticks preceding in the pattern candlestick.
The length of pattern candlestick shadow must be at least as long as the length of its body.
The closing price of the pattern candlestick must be lower than the closing price of the preceding candlestick.
5. Pennant pattern
The original direction of the Pennant pattern indicates the trend’s expected future movement.
The pennant itself represents a ranging period that is created immediately after the steep trend that created the pennant’s pole.
The boundaries of the trade internal, the pennant itself are created by the support and resistance line, which are parallel to one another, or slightly converged creating a shape of a Pennant or flag.
The upwards pennant pattern is called a bullish Pennant, and the downward pennant pattern is called a bearish pennant.
The length of the pennant pole can be used to estimate the exit target level.
The pennant pattern is considered to be a reliable pattern with 80 to 85% chances of success.
6. Triangle pattern
Technical analysis recognizes three types of triangles.
- Bullish triangle
- In this pattern, the lower side of the triangle slopes upwards while the top side is horizontal. 80% of the time the break out of this triangle pattern will occur in upwards direction.
- Symmetric triangle
- In this pattern, the two sides of the triangle are sloped towards one another in the conversion shape. In 60% of cases, the break up occurs from this triangle will continue the original direction of the trend.
- Bearish triangle
- In this pattern, the upper side of the triangle slopes downwards, or the top side is horizontal. In 80% of cases, the break up from this triangle will occur in a downward direction.