by David Vomund
Stock prices tend to move in trends. When an existing trend
ends, a classic technical pattern known as a triangle often
develops. Here's how to make use of this pattern in the
When an existing trend is in the
process of ending, there is typically
some backing and filling,
during which a classic
technical pattern referred to as
a triangle often develops.
There are many variations of
this pattern, but here, we will
concentrate on two variations:
the right triangle and the symmetrical
THE RIGHT TRIANGLE
The right triangle pattern exhibits a series of narrower price
fluctuations. On one side of the fluctuation, the boundary of
price action is horizontal. On the other side, prices fluctuate
toward the horizontal boundary. An ascending triangle is a
right triangle with a horizontal top and an ascending bottom.
A descending triangle is the reverse.
To illustrate, let's look at Smith International [SII] in
Figure 1. Early in 1997, SII began to form an ascending
triangle. The resistance† level was at $49 and the stock sold
off every time it reached this point, yet each selloff was smaller than the previous one. Now, remember that a trendline
is drawn at the extremes of a pattern. For each trendline, at
least two price points must be connected before the stock
breaks out. In early May, SII was able to clear that resistance
hurdle, which was the buy point.