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Triangle Chart Pattern

Triangles come in three varieties: Symmetrical, Ascending and Descending. All three share the common idea that the price range (High price – low price) of individual price bars is larger at the left side of the chart (called the base) and that the price range progressively becomes smaller as time advances. The right side of the pattern is called the apex and is where the price ranges are the smallest.

Symmetrical Triangle Chart Pattern

symmetrical triangle

A symmetrical triangle (also known as a coil or isosceles triangle) occurs when there is a downward sloping resistance line and an upward sloping support line that meet together at the right side of the pattern. Technically, for the triangle pattern to be valid, the support line must be touched by prices twice and the resistance line must be touched by prices twice.

Symmetrical Triangle Breakout Direction and Timing of Breakout

diagram showing percentage of charts that breakout up and down

Kirkpatrick and Dahlquist state that symmetrical triangles breakout to the upside 54% of the time and these breakouts average about 73%-75% of the way into the triangle (the base, or left side of triangle, would be considered 0% and the apex, or right side of triangle, would be considered 100%) and that increasing volume on the breakout is associated with better performance of the symmetrical triangle pattern (2010, p. 318).

Breakout Price Performance of Symmetrical Triangle

diagram illustrating price performance after a symmetrical triangle breakout

Performance of the symmetrical triangle is as follows (Kirkpatrick and Dahlquist, 2010, p. 315):
Price Breakout Up: Price fails to gain at least 5% from breakout only 9% of the time; the average maximum gain before any 20% decline is 31%.
Price Breakout Down: Price fails to gain at least 5% from breakout 13% of the time; the average maximum gain from shorting before any 20% reversal upwards is 17%.

Price Targets for the Symmetrical Triangle Price Breakout

Generally technical analysts suggest taking the height of the pattern and then adding or subtracting that from the breakout price (Rockefeller, 2011, p. 165). However, noted chart pattern researcher, Bulkowski (2008) suggests the following breakout price targets for the symmetrical triangle:

Symmetrical Triangle Breakout Upward: Breakout Price + ((Highest Price in Triangle - Lowest Price in Triangle) * 66%)
Symmetrical Triangle Breakout Downward:Breakout Price - ((Highest Price in Triangle - Lowest Price in Triangle) * 48%)

Symmetrical Triangle Chart Example

stock chart of the symmetrical triangle

The chart above of Oracle (ORCL) shows a symmetrical triangle pattern in an uptrend. Notice that as is typical with the symmetrical triangle, a breakout occurs 3/4 of the way into the triangle. It also has a one-day large price bar that pulls back after the upward breakout. Kirkpatrick and Dahlquist (2008) state that this pullback after an upward breakout occurs 37% of the time (with a downward breakout, a pullback occurs 59% of the time). Also notice that in this particular chart, prices have been gapping up. Usually when prices move up quickly (as is the case with gaps), prices tend to rest. A symmetrical triangle is a visual representation of this rest where prices become less volatile and do not commit to a massive move in one direction or the other until roughly three-fourths of the way into the triangle.

Ascending Triangle Chart Pattern

ascending triangle

An ascending triangle occurs when there is a horizontal resistance line and an upward sloping support line that meet together at the right side of the pattern. For the triangle pattern to be valid, both the support line and the resistance line must be touched by prices twice.

Ascending Triangle Breakout Direction and Timing of Breakout

diagram showing percentage of ascending triangle charts that breakout up and down

Kirkpatrick and Dahlquist state that symmetrical triangles breakout to the upside 77% of the time and these breakouts average about 61% of the way into the triangle (the base, or left side of triangle, would be considered 0% and the apex, or right side of triangle, would be considered 100%) (2010, p. 317).

Breakout Price Performance of Ascending Triangle

diagram illustrating price performance after an ascending triangle breakout

Performance of the ascending triangle is as follows (Kirkpatrick and Dahlquist, 2010, p. 315):
Price Breakout Up: Price fails to gain at least 5% from breakout only 13% of the time; the average maximum gain before any 20% decline is 35%.
Price Breakout Down: Price fails to gain at least 5% from breakout 11% of the time; the average maximum gain from shorting before any 20% reversal upwards is 19%.

Price Targets for the Ascending Triangle Price Breakout

Bulkowski (2008) suggests the following breakout price targets for the ascending triangle:

Ascending Triangle Breakout Upward: Highest Price in Triangle + ((Highest Price in Triangle - Lowest Price in Triangle) * 75%)
Ascending Triangle Breakout Downward:Breakout Price - ((Highest Price in Triangle - Lowest Price in Triangle) * 68%)

Ascending Triangle Chart Example

stock chart with an ascending triangle pattern

The chart above of Cisco Systems (CSCO) illustrates an ascending triangle formation. As is typically expected, prices break to the upside and the breakout occurs about two-thirds of the way towards the cradle of the triangle.

Descending Triangle Chart Pattern

descending triangle

A descending triangle occurs when there is a downward sloping resistance line and a horizontal support line that meet together at the right side of the pattern (i.e. the apex). For the triangle pattern to be valid, both the support line and the resistance line must be touched by prices twice.

Descending Triangle Breakout Direction and Timing of Breakout

diagram showing percentage of descending triangle charts that breakout up and down

Kirkpatrick and Dahlquist state that descending triangles breakout to the downside 64% of the time (2010, p. 315).

Breakout Price Performance of Descending Triangle

diagram illustrating price performance after an descending triangle breakout

Performance of the descending triangle is as follows (Kirkpatrick and Dahlquist, 2010, p. 315):
Price Breakout Up: Price fails to gain at least 5% from breakout only 7% of the time; the average maximum gain before any 20% decline is 47%.
Price Breakout Down: Price fails to gain at least 5% from breakout 16% of the time; the average maximum gain from shorting before any 20% reversal upwards is 16%.

Price Targets for the Descending Triangle Price Breakout

Bulkowski (2008) suggests the following breakout price targets for the descending triangle:

Descending Triangle Breakout Upward: Breakout Price + ((Highest Price in Triangle - Lowest Price in Triangle) * 84%)
Descending Triangle Breakout Downward:Lowest Price in Triangle - ((Highest Price in Triangle - Lowest Price in Triangle) * 54%)

Descending Triangle with Downward Breakout Chart Example

chart example with a descending triangle and a downward breakout

The chart above of Chevron (CVX) shows a descending triangle with a breakout to the downside. Note that with the descending triangle, the top descending resistance line illustrates that the price bars have lower lows. The bottom support line acts as support for eleven days, once the support is broken prices crash lower.

Descending Triangle with Upward Breakout Chart Example

chart example with a descending triangle that breaks upward

This chart of AT&T (T) shows a descending triangle with an upside breakout. According to Bulkowski's research (2005), the descending triangle with upside breakout reaches an averaged maximum gain of 47% (this is the gain achieved before any 20% decline occurs).

Works Referenced

  1. Nison, S. (2003) The Candlestick Course. Hoboken: John Wiley & Sons.
  2. Nison, S. (1994) Beyond Candlesticks: New Japanese Charting Techniques Revealed. New York: John Wiley & Sons.
  3. Nison, S. (1991) Japanese Candlestick Charting Techniques. New York: New York Institute of Finance.
  4. Rhoads, R. (2008) Candlestick Charting For Dummies. Hoboken: Wiley Publishing.
  5. ThinkorSwim. (2011). ThinkorSwim Resource Center: Candlestick Patterns Library.
  6. The Pattern Site. (2005). Bulkowski's Ascending Triangles . Retrieved June 1, 2012, from http://thepatternsite.com/at.html
  7. The Pattern Site. (2005). Bulkowski's Descending Triangles . Retrieved June 1, 2012, from http://thepatternsite.com/dt.html
  8. The Pattern Site. (2005). Bulkowski's Symmetrical Triangles . Retrieved June 1, 2012, from http://thepatternsite.com/st.html