ASX Charting Course

Chapter 5

Triangles

Markets tend to trend only 15-20% of the time, the rest of the time they spend correcting the trend or trading in a range, which is commonly referred to as a trading bracket. These corrections often take on distinctive formations and patterns, the most obvious being the triangular shape. This starts with a large retracement to set the base and then gets progressively narrower toward an apex. Finally price will break out or break down from this triangle and it will be this break that provides the signal for the next direction.
t's a go with signal. A breakout would issue a buy signal and a break down would issue a sell signal. One could carry a bias in the direction of the underlying trend, but it's often desirable to remain open to a move in the other direction.

There are three classes of triangles.

The symmetrical triangle

This is the most balanced structure. The overhead line is roughly the same angle going down as the support line is going up, hence the symmetrical structure. The direction of the underlying trend provides a bias for the possible direction of the next move, but really given the symmetry of the structure either direction is possible.Fig 4 – Trend Channels Down

The ascending triangle

Once again either direction is possible for the next move out of the triangle, however given the up sloping nature of the triangle, it does suggests a breakout to higher prices is more likely than a break down.

The descending triangle

This formation suggests the opposite to the ascending triangle or wedge, as it is sometimes called. In this case there is a greater probability for price to break down out of the triangle, than to breakout and rally to higher prices.

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