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Stocks & Commodities V. 32:10 (16-19, 37): The Trouble With Triangles by Thomas Bulkowski
Stocks & Commodities V. 32:10 (16-19, 37): The Trouble With Triangles by Thomas Bulkowski
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The Trouble With Triangles by Thomas Bulkowski
For Better Or For Worse
Chart patterns are like children: Some behave better than others. Triangles ascending, descending, and symmetrical are seductive because their shape can signal the breakout direction, but they can be difficult to trade well. Lets discuss them in order, starting with ascending triangles.
ASCENDING TRIANGLES
In Figure 1 you see an example of an ascending triangle in red on the daily scale. Price bumps up against a ceiling of overhead resistance and gets repelled time after time, forming a flat top. A line joining those tops is horizontal or nearly so.
The bottoms, however, make higher valleys. That means a trendline connecting the valleys will slope upward. The minor highs touch the top trendline several times (points 1 to 3) and minor lows touch the bottom trendline often too (points 4 to 7). Look for price to touch each trendline at least twice, preferably three or more times. The two trendlines join at the triangles apex.
For all triangles, price must cross the pattern, bouncing from top to bottom, filling the white space with movement. Do not cut off a rounded turn and call it an ascending triangle. The upper left inset of Figure 1 shows an example of what not to do. Cutting off the rounded turn (the black line is price) and calling the result an ascending or descending triangle (for convex turns) is a common mistake.
For Better Or For Worse
Chart patterns are like children: Some behave better than others. Triangles ascending, descending, and symmetrical are seductive because their shape can signal the breakout direction, but they can be difficult to trade well. Lets discuss them in order, starting with ascending triangles.
ASCENDING TRIANGLES
In Figure 1 you see an example of an ascending triangle in red on the daily scale. Price bumps up against a ceiling of overhead resistance and gets repelled time after time, forming a flat top. A line joining those tops is horizontal or nearly so.
The bottoms, however, make higher valleys. That means a trendline connecting the valleys will slope upward. The minor highs touch the top trendline several times (points 1 to 3) and minor lows touch the bottom trendline often too (points 4 to 7). Look for price to touch each trendline at least twice, preferably three or more times. The two trendlines join at the triangles apex.
For all triangles, price must cross the pattern, bouncing from top to bottom, filling the white space with movement. Do not cut off a rounded turn and call it an ascending triangle. The upper left inset of Figure 1 shows an example of what not to do. Cutting off the rounded turn (the black line is price) and calling the result an ascending or descending triangle (for convex turns) is a common mistake.
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