How do you catch a stock trend
Technical Analysis - Triangle Formations
Interesting continuation patterns
Triangles are usually viewed as continuation patterns in technical analysis. There's a good reason for that too. For example, prices often come to rest for a while after they have risen sharply. It is as if the market wants to take a quick breath and recharge its batteries before continuing the further advance. Of course, this also applies to falling prices.
The prices relax
In this environment, prices begin to fluctuate less. You calm down and the chart clearly shows that the gap between the highs and lows is narrowing. This is the moment when the technical analyst draws one of the three possible triangular formations on his chart. We differentiate:
The symmetrical triangle
A symmetrical triangle is drawn by two trend lines that lean towards each other in equal measure.
In the example we see the creation of a symmetrical triangle in the EuroStoxx 50 index (60-minute chart). The price had risen sharply and later the index then consolidated at this high level. After four touches (two up and two down) the index broke above the upper trend line. But this outbreak was short-lived. Prices then fell back into the consolidation pattern.
Waiting for confirmation
Another rule for trading triangles applies here. It is best to wait for a close on the breakout, in this case on a 60 minute basis. If the prices are still trading above the trend line, then we speak of a valid buy signal. The symmetrical triangle is therefore considered more of a neutral formation in technical analysis. The courses can break out to the top, but do not have to.
The rising triangle
The ascending triangle can be viewed as a variant of the symmetrical triangle and has a higher status as a continuation pattern than a symmetrical triangle. This pattern has a rising line that acts as support, while a horizontal line above acts as resistance. The rising lows show that buyers are more aggressive than sellers. This is a bullish pattern that most often leads to a successful breakout to the upside.
In the example we see a 60-minute chart of the Facebook share this time. There was already a significant bullish trend before Facebook turned into a rising triangle. The formation is not ideal, but it is valid. Facebook managed to close above the upper resistance line. A valid buy signal.
The descending triangle
The descending triangle is the mirror image of the ascending triangle. The support here is horizontal while the resistance line falls until it crosses the support line. It is a bearish continuation pattern and is of course more common in sharply falling markets, as illustrated below on the daily Apple stock chart. The trend was clearly negative before Apple saw buying interest just above the psychologically important $ 500 mark. But the joy was short-lived. Apple fell through the support (red circle) and the downward trend has continued towards $ 400.
The award-winning trading platform NanoTrader has very extensive options for recognizing different candle formations.
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