Stock Trading Chart - Continuation Patterns

Stock Trading Chart: Triangles
Triangles are consolidation patterns which occur when prices encounter support or resistance.

This stock trading chart form as indecision between buyers and sellers causes the range between peaks and valleys to narrow with a reduction in volume.
Breakouts from these chart formations are more reliable when they occur in the last third of the pattern.

There are three basic triangle formations:

• Symmetrical triangles
• Ascending triangles
• Descending triangles

Symmetrical Triangles

The symmetrical triangle is the most common of the triangle shapes found in price charts. It is sometimes known as a coil. The pattern requires at least four points of contact with its converging trend lines, with each new lower peak and higher valley being more shallow than the last.

Volume decreases as the pattern takes shape. Upside breakouts should occur with higher volume. Downside breakouts may experience low volume.

A price movement is projected from the breakout of the upper trend line, or penetration of the lower trend line, which is equivalent to the price difference between the first points of contact with the upper and lower trend lines.

Ascending Triangles

An ascending triangle displays a horizontal top trend which acts as a strong resistance level when the formation is developing. Once the breakout occurs on higher volume, this level should act as a support level for future price movements. The bottom trend line of the formation slopes upwards.

Volume reduces as the pattern forms but increases on the breakout.

The distance between the upper and lower trend line is broken on the breakout, on the upside, to provide the first price target.

Descending Triangles

The descending triangle is a bearish formation which mirror images the ascending triangle. It has a flat base which provides support while the pattern is forming. Once the breakout to the downside occurs, this support level becomes resistance. The top trend line slopes downwards.

A bullish flag's formation is usually apparent after a strong upward price move. A bearish flag often appears after a strong downward move. The trend lines joining these minor highs and lows tend to run parallel.

Volume drops off whilst this pattern is forming and increases on the breakout.

The price target is measured by calculating the difference in price between the start of the trend and the formation of the flag. This is added to the breakout (in an uptrend) or deducted from the penetration (in a downward) to project the price.


Stock Trading Chart: Pennants

Pennants may be considered mini symmetrical triangles. However, they are shorter in duration and are smaller in price swing range.

Volume usually recedes during the formation and increases on the breakout.

The initial price target is calculated by adding the price difference between the prior minor low preceding the formation and the formation start (in an uptrend) to the breakout point of the pattern. The reverse applies to a downtrend.


Stock Trading Chart: Wedges

The wedge formation is similar to that of a symmetrical triangle in that it is a continuation pattern with two converging trend lines that come together at an apex. However, they are distinguished by their noticeable slant, which may be to the upside or downside.

The trend lines and the price action slope against the major trend. A failing wedge features a series of lower highs and lower lows. It is regarded as a bearish pattern.

Volume trends downwards during the pattern's formation and increases on the breakout.
The price target for a failing wedge is the highest price in the pattern. The price target for a rising wedge is the lowest price in the formation.

Highly Recommended FREE Sign Up

Search Here For More Information

Top Page of Stock Trading Chart - Continuation Patterns

Back to Homepage