Continuation Patterns. Triangles

Continuation patterns indicate that the price movement in the sideways direction is no more than a temporary pause in the existing price trend; the upcoming movement will be in the same direction as the pattern formation. In this article, we will talk about the triangle continuation patterns.

Continuation VS reversal

Continuation patterns differ from reversal patterns in terms of the time frame. Reversal patterns take longer to form and result in a change in the primary trend. On the other hand, continuation patterns take a shorter time to form and can be classified as short or medium-term patterns.

Triangles are considered one of the most important continuation patterns. There are three types: the symmetrical triangle, the ascending triangle, and the descending triangle.

The triangle pattern is completed after a certain period when the trading lines meet at one point at the apex of the triangle. The intersecting trend lines represent a time target by measuring the extent of the pattern width (if the horizontal width of the pattern is 20 weeks, the expected price break would be between 13 and 15 weeks).

As a general rule, the price must break out of the previous trend at a specific point between two-thirds and three-quarters of the horizontal width of the triangle. When the price can break the upper trend line of the triangle upward, it is a sign of breaking the upper limit of the trading range.

If the trend is upward, the penetrated line becomes a support line, while in a downward trend, the lower trend line becomes a resistance line. One of the most important criteria is for the price to close behind the trend line that was penetrated, and not just break it during the day.

When a triangle pattern takes between one and three months to form, it is considered a medium-term pattern. But if it appears in less than a month, it may be a different pattern like a flag. These basics apply to triangles on long-term charts as well.

Symmetrical triangle

This triangle is formed by the intersection of two trend lines at one point, where the upper line is downward sloping and the lower line is upward sloping. The vertical line on the left measures the height of the pattern and is called the base of the triangle. The point where the two lines intersect on the right is called the apex of the triangle.

For example: in the ascending symmetrical triangle, we can see how the two trend lines intersect at one point. The vertical line on the left represents the base of the triangle, while the point on the right is the apex of the triangle.

For this pattern to be formed correctly, there must be at least 4 reversal points. In the above chart, the triangle starts at point 1, where the price consolidation begins in an uptrend. The prices then retreat to point 2 before rising to point 3, which is at a lower level than point 1. We cannot draw the upper trend line until the price drops from point 3.

Ascending triangle

The ascending triangle is formed by the intersection of an upward trend line with a straight line in a horizontal direction. This means that buyers in the market are much more dense than sellers. This pattern is considered an ascending pattern and is completed by breaking the upper limit.

The ascending triangle pattern is completed when the price can close above the upper trend line. This breakthrough is accompanied by a high-density trading volume, and the upper trend line acts as a support level.

The minimum price target is determined by measuring the length of the triangle base (from point A to point B in the scheme below) and drawing a trend line in the upward direction equal to it from the point of breakthrough (point C).

The ascending triangle pattern typically signifies a continuation. But in some cases, it can indicate a reversal when it appears at the end of a downward trend. A breakout from this pattern often signals an upward trend, particularly when the upper trend line of the triangle is broken.

Descending triangle

The descending triangle is a bearish pattern, opposite to the ascending triangle. It is formed by the intersection of a downward trend line with a lower horizontal trend line. The triangle indicates a higher density of sellers than buyers and signals a likely price decrease if the lower trend line is broken and the price closes below it with a high trading volume. The measurement method for this pattern is the same as that of the ascending triangle.

Similar to the ascending triangle, the descending triangle can also act as a reversal pattern when it appears at the top of the price. If the closing price falls below the horizontal trend line, it signals a reversal of the previous trend and the beginning of a downward trend.

Importance of trading volume

When price fluctuations become limited within the triangle pattern, trading volume tends to decrease (to be precise, it does so in all continuation price patterns.) When the trend line that completes the pattern is broken, trading volume must increase significantly. 

The corrective movement of the price after the breakthrough is accompanied by a low density of trading volume, and this density increases again when the price resumes its trend. 

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