Stocks & Commodities V. 31:2 (62-64): Right-Angle Triangles by Bruce Tintelnot

Stocks & Commodities V. 31:2 (62-64): Right-Angle Triangles by Bruce Tintelnot
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Right-Angle Triangles by Bruce Tintelnot

When chart patterns form, they can give you some idea on where prices may be going as they go their own way. Hereís the right triangle chart pattern, the two types that form, and what they indicate.

When market technicians began charting trending markets, they observed that the charts formed recognizable patterns as the bulls or the bears struggled for control of prices. Some of the patterns are consistent with the continuation of a trend and some often indicate a trend reversal. The right triangle pattern, whether it is ascending or descending, is one that most often indicates the continuation of a trend.

Ascending triangles

The ascending triangle is a continuation pattern that indicates accumulations with bullish, uptrending prices on a price chart. Its characteristics are a horizontal ranging of prices forming two or more almost equal peaks that can be connected by a straight, horizontal line. Usually, an equal number of troughs form at ascending price levels that can also be connected by a straight angular line forming a triangle pattern. If the beginning of the trendline is connected to the horizontal line by a perpendicular one, a right triangle is the result.

This is a robust formation that isnít relegated to any particular trend duration. The upper horizontal line forms a resistance level that is continually tested by buyers. Each failure to break out above the resistance results in a reaction low that is higher than the previous low, indicating the bullishness of the continuation. Usually, volume contracts as the trading range decreases with a surge of activity when the resistance level is actually breached.

As usual in technical analysis, the resistance level becomes a support level for the rising prices when the breakout occurs. The daily chart of Tanger Factory Outlet Centers in Figure 1 displays an ascending triangle from May 2012 to August 2012. Prices broke out of this triangle in early August 2012 accompanied by high volume.

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