The triangle formation is a method that is frequently used in technical analysis and is used to determine the direction of price movements. Triangle formation refers to the convergence of two trend lines that have been in opposite directions for a while, getting stuck. There are three variants of the triangle pattern: descending, ascending and symmetrical.
A descending triangle occurs in markets where sellers are stronger than buyers. Prices are in a downtrend and each high is formed below the previous high. The upper edge of the triangle is the falling trend line connecting the hills. The bottom edge of the triangle is a straight line connecting the bottoms. Trading volume decreases as prices get stuck inside the triangle. Once the pattern is complete, the price is expected to drop below the lower edge of the triangle. The target of the formation is the price level as low as the height of the triangle.
An ascending triangle occurs in markets where buyers are stronger than sellers. Prices are in an uptrend and each bottom is formed above the previous low. The lower edge of the triangle is the ascending trendline connecting the bottoms. The upper edge of the triangle is a straight line connecting the vertices. Trading volume decreases as prices get stuck inside the triangle. Once the pattern is complete, the price is expected to rise above the upper edge of the triangle. The target of the pattern is the price level as high as the height of the triangle.
Symmetrical triangle formation occurs in markets where buyers and sellers are in balance. Prices both rise and fall, with each high below the previous high and each low above the previous low. Both sides of the triangle are sloping trend lines and move in opposite directions. Trading volume decreases as prices get stuck inside the triangle. When the formation is completed, it is not clear in which direction the price will break. It is therefore important to keep track of the breakpoint. The target of the formation is the price level in the relevant direction as well as the height of the triangle.
Triangle patterns are important chart templates in technical analysis and help traders predict the direction of the market. In order to correctly recognize and apply triangle patterns, it is necessary to identify trend lines, observe trading volume and monitor breakout points.