Triangle Chart Pattern in Technical Analysis Explained

What Is a Triangle Chart Pattern?

A triangle chart pattern is a tool used in technical analysis. Named for its resemblance to a series of triangles, the triangle chart pattern is created by drawing trendlines along a converging price range. The result signals a pause in the prevailing trend.

Technical analysts read the triangle as an indicator of a continuation of an existing trend or reversal.

Despite being a continuation, traders should look for breakouts before they make a move to buy or sell.

Understanding Triangle Chart Patterns

Technical analysis in general is a trading strategy that involves creating charts and patterns that help traders identify trends in the price movements of a single stock, a sector, or the markets as a whole. They track price patterns over time to make predictions about future price performance.

Triangle patterns are aptly named because the upper and lower trendlines ultimately meet at the apex on the right side, forming a corner. These patterns are formed once the trading range of a stock or another security becomes narrow.

Connecting the start of the upper trendline to the beginning of the lower trendline completes the other two corners to create the triangle. The upper trendline is formed by connecting the highs, while the lower trendline is formed by connecting the lows.

Triangles are similar to wedges (price patterns marked by converging trendlines) and pennants (continuation patterns that are formed when an asset shows a large movement), which are also used in technical analysis.

They can be either a continuation pattern, if validated, or a powerful reversal pattern, in the event of failure. Traders use triangles to pinpoint when the narrowing of a stock or security's trading range after a downtrend or uptrend occurs.

Three potential triangle variations can develop as price action carves out a holding pattern, namely ascending, descending, and symmetrical triangles. Technicians see a breakout, or a failure, of a triangular pattern, especially on heavy volume, as being potent bullish or bearish signals of a resumption, or reversal, of the prior trend.

Types of Triangle Chart Patterns

The following diagram shows the three basic types of triangle chart patterns: the ascending, descending, and symmetrical triangles. We go into more detail about what they are and how they work below.

Ascending Triangle

An ascending triangle is a breakout pattern that forms when the price breaches the upper horizontal trendline with rising volume. It is a bullish formation.

The upper trendline must be horizontal, indicating nearly identical highs, which form a resistance level. The lower trendline is rising diagonally, indicating higher lows as buyers patiently step up their bids.

Buyers eventually lose patience and rush into the security above the resistance price, which triggers more buying as the uptrend resumes. The upper trendline, which was formerly a resistance level, now becomes support.

Descending Triangle

A descending triangle is an inverted version of the ascending triangle and is considered a breakdown pattern. The lower trendline should be horizontal, connecting near identical lows. The upper trendline declines diagonally toward the apex.

The breakdown occurs when the price collapses through the lower horizontal trendline support as a downtrend resumes. The lower trendline, which was support, now becomes resistance.

Symmetrical Triangle

A symmetrical triangle is composed of a diagonal falling upper trendline and a diagonally rising lower trendline. As the price moves toward the apex, it will inevitably breach the upper trendline for a breakout and uptrend on rising prices or breach the lower trendline forming a breakdown and downtrend with falling prices.

Traders should watch for a volume spike and at least two closes beyond the trendline to confirm the break is valid and not a head fake. Symmetrical triangles tend to be continuation break patterns, which means they tend to break in the direction of the initial move before the triangle forms. So if an uptrend precedes a symmetrical triangle, a trader would expect the price to break to the upside.

The Bottom Line

Technical analysis requires a great deal of practice and patience. This is true of any type of trading tool used in this strategy, including triangle chart patterns.

It's important to keep in mind that the market is ultimately unpredictable and can defy predictions at any moment. If you're going to use triangle patterns, make sure you take positions only after you confirm a breakout in the price action of the security in question.