7.8 More Continuation Patterns
Triangle patterns are usually characteristic of a trend consolidation followed by an accelerated break out of the pattern in the direction of the continuing trend. Triangles form in three basic categories: symmetrical, ascending and descending. A variant of the triangle pattern is the wedge.
Symmetrical Triangle
A symmetrical triangle is indicative of a period of consolidation during an uptrend or a downtrend.
The symmetrical triangle has a line of support that slopes upwards and a line of resistance that slopes downward. The triangle pattern yields to a breakout in the direction that corresponds with the trend beforehand, though not always.
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Ascending Triangle
An ascending triangle is indicative of a period of consolidation during an uptrend. It is formed when price action moves between a line of resistance that is relatively flat or horizontal and a line of support that is sloping upwards.
As the two lines converge the chance of a break out increases. When price moves strongly above the line of resistance the pattern ends.
On the right is a daily chart showing an uptrend that consolidates for almost a month in an ascending triangle pattern.
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Descending Triangle
A descending triangle is indicative of a period of consolidation during a down trend. It is formed when price action moves between a line of resistance that is sloping downwards and a line of support that is relatively flat or horizontal. As the two lines converge the chance of a break out increases. When price moves strongly below the line of support the pattern ends and the downtrend continues. A real life example is shown to the right.
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The wedge pattern shares most of its characteristics with the symmetrical triangle and the flag. The wedge forms much like the triangle and signifies a sharp expected breakout in the direction of the prevailing trend. Much like the flag, however, the wedge itself forms at an inclination opposite to the direction of the trend before breaking out in the direction of the prevailing trend.
