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Triangles – Bullish and Bearish

The information on this page is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.

Introduction

Technical analysis or Charting allows investors to use a range of patterns to assist them with timing their entry to and exit from positions. Triangles, essentially continuation patterns like flag and pennants, are some of the most helpful within a trending market – rising or falling – signalling that after a short pause the prevailing trend should continue. Note, however, that they can also exist as reversal signals after an uptrend or downtrend if the rally or sell-off has become exhausted.

Triangles exist in both Bullish and Bearish form and each can be split into 3 distinct sections;

Bullish triangles

Bullish triangle

  1. The initial rally into the triangle can be steep or gradual.
  2. The triangle represents a pause to consolidate, with rising lows and horizontal ceiling (bullish ascending triangle) being the first signs that a bullish triangle is forming.
  3. Once the shares break higher it is possible that another rally – equating to the height of the triangle – (measured from its lowest low to its ceiling – could be delivered.

 

 

 

 

 

 

Bearish triangles

Bearish triangle

  1. The initial sell-off into the triangle can be steep or gradual.
  2. The triangle represents a pause to consolidate, with falling highs and a horizontal floor  (bearish descending triangle) being the first signs that a bearish triangle is forming.
  3. Once the shares break down it is possible that another sell-off – equating to the height of the triangle – (measured from its highest high to its floor) could be delivered

 

 

 

Remember! Nobody’s perfect

Whilst trade objectives are calculated by assuming and projecting a repeat of the initial up or down move, note that Bullish or Bearish triangles don’t always deliver a move equating to the full triangle height. Sometimes they undershoot. Sometimes they overshoot. And the triangle itself is not always a perfectly neat affair. What is most important is that overall pattern respects the general steps mentioned above.

Caveat

Individual technical indicators should never be relied upon in isolation for trading decisions, however strong the signal may be. Ultimately they are one of many indicators, which may, in the majority, be pointing the other way. Always use look at other indicators (moving averages, trendlines, price, price patterns, volume) to assist in the final trading decision. Lastly, the current trend of a share should always be respected – preempting a change can prove costly.

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.