Chart Pattern 1

 6) Ascending Triangles

The ascending triangle is a continuation pattern defined by an entry point, stop loss, and profit target. On a price chart, it appears as a horizontal support line connecting the highs to the lows from an upward trend line. Each ascending triangle has at least two highs and two lows. In comparison, a descending triangle has a horizontal lower line and a descending upper trend line.

The above chart represents an ascending triangle. It consists of a horizontal resistance line drawn at smaller highs, with a rising trend line connecting minor lows, forming a triangular pattern. 

Ascending triangles are continuation patterns because the price usually breaks out in the direction it was going before the pattern. Like other types of triangles, volume often shrinks during chart patterns. Investors usually enter when a price breakout occurs, keeping an eye on false breakouts. The positions they take depend on the direction of the breakout - buy in the up direction and sell in the down direction. The stop loss is placed just outside the triangle. To calculate the profit target, traders take into account the height of the triangle at the maximum width and adjust that measurement according to the breakout price.

With ascending triangles, the wider the pattern, the higher the risk/reward. For narrower patterns, the stop loss becomes smaller; However, the profit target is still based on the most important part of the pattern. In terms of the challenges faced by traders using this chart, false breakouts are an important consideration. Price movement can fluctuate, moving in and out of the pattern in either direction if it fails to break the upper resistance level.

Hedge funds and other institutional organizations can buy hundreds of thousands of shares in a company. After the stock has risen, and it has concluded that there are better opportunities elsewhere, the organization will exit the position. Here they have to sell their stock, but only up to a certain point, in this example, we use $50. Since a large amount of stock is being dumped in the market, the price of that stock cannot climb above $50, because as soon as it does, it will trigger a sale from the organization.

When word on the stock is out, other sellers jump on the bandwagon and push the stock down even further. Once all sellers are satisfied, buyers arrive, thinking that the stock is a steal at this low price, and overtook the shares, raising it even higher than before. 

Pattern Type: Continuity

 Sign - Bullish

 Breakout Confirmation: Confirmation of this pattern is near the high of the average trading volume. Measurement: Subtract the height from the lowest low of the pattern and then add it to the breakout level.

Volume: Volume declines during an ascending triangle formation, and expands when a breakout occurs.

 The ascending triangle pattern represents a high-risk/reward scenario, truncating other patterns that tend to narrow over time. The biggest issue with this chart pattern is the potential for false breakouts. As a result, the chart pattern can be redrawn several times as price action crosses the resistance level, but fails to sustain the breakout price. To learn more about stock chart patterns and to fully take advantage of technical analysis, be sure to check out our complete library of predictable chart patterns. These include comprehensive descriptions and images so that you can identify important chart pattern scenarios and become a better trader.

7) Symmetrical Triangle pattern

The symmetrical triangle pattern is relatively easy to notice because of its distinctive form. It is one of the three important triangle patterns defined by classical technical analysis. The other two are the descending triangle and the ascending triangle.

A symmetrical triangle is a chart that can be identified by its lower highs and higher lows. This pattern is indicated when two trend lines converge with convergent trend lines connecting multiple peaks and troughs.

Once one of those peaks "breaks out" of this barrier, it can indicate a powerful bullish or bearish move that investors can take advantage of if they know how to look for it. If the breakout point appears at a trough point, it may indicate a strong movement in bear territory and is an excellent sign that it is time to exit. If the breakout point is extreme, it may indicate a bull movement and a good time to invest. 

Edwards and Maggie, authors of Technical Analysis of Stock Trends, suggest that approximately 75% of symmetrical triangles are continuation patterns, and the rest mark reversals.

This indicates that we should not guess the direction of the breakout, but instead be patient and wait for it to happen. Additional analysis can also be applied to breakouts by looking at gaps, volume, and quick price movement. When trading the symmetrical triangle, it is important to wait for confirmation of the breakout to be on the right side.

These patterns have two or more swing highs and lows when it comes to price, and investors need to be prepared to adjust to trend lines with more "swings" to level the playing field. it occurs. These types of patents can often mislead investors, and they lose volume because they appear to be "purposeless," but for those who know how to look for breakouts, these patterns can give a great indication of where to go. Know when to buy it and when to go.

A settling triangle can be set up for a breakout which can be calculated by taking the distance from the upper support line and lower resistance at the beginning of the pattern and then adding that to the breakout price point. For example, a settled triangle may start at a price point of $40, then trade to $50 before the trading range narrows. So here, a breakout from the $45 price point could result in a price target of $55 ($50 - $40 = $10 + $45 = $55).

The stop loss order should be placed slightly below the breakout point for the symmetrical triangle pattern. For example, if the stock begins to break out at above-average volume at $45, investors should place their stop-loss orders slightly below the $45 price point.

Why are there symmetrical triangles?

 When supply and demand are out of balance, the stock's price action will move forward. Either the bulls will overtake the bears and push the stock higher, or the bears will overtake the bulls and push the stock down—traders who can accurately identify in which direction the symmetrical triangle will condense the rewards of profit. 

Pattern Type: Continuation or Reversal

Indication: bullish or bearish

Breakout Confirmation: This pattern is confirmed above or below the converging trend line at above-average trading volume.

Measurement: Subtract the high of the pattern's lowest low and highest high and then add or subtract this amount at the breakout level depending on how the breakout progresses.

Volume: Expanding on breakouts, volume declines throughout the symmetrical triangle formation.

Be careful when trading symmetrical triangles, as traders can be faked on bullish and bearish signals that reverse soon after the trend begins. It is recommended to stop for a day after the breakout to determine whether the pattern is real or not. Look for one-day closing price targets below the trend line for a bullish signal and above the trend line for a bearish signal. To learn more about stock chart patterns and to fully take advantage of technical analysis, be sure to check out our complete library of predictable chart patterns. These include comprehensive descriptions and images so that you can identify important chart pattern scenarios and become a better trader.

 

8) Descending Triangle

The descending triangle chart pattern, also known as the descending triangle, allows traders to measure the distance from the beginning of the pattern, represented by the highest point, all the way to the flat support line. This type of technical analysis identifies a downward trend, which will eventually break through resistance levels causing price action to drop.

Traders look for a descending triangle as the pattern indicates that a breakdown is imminent. Usually, when there is a fall in price, buyers push up the price even more. However, a descending triangle indicates that buying pressure is lacking. Here, sellers begin selling at even lower prices, which suggests a series of lower highs. A breakdown usually occurs when volumes are high, and the following move is rapid and severe.

Descending triangles are popular because they provide traders with the opportunity to make substantial profits in the short term. To trade the pattern, technical traders take a bear position after a break of high volume. The price target is usually equal to the entry point minus the vertical distance between the lines drawn when the breakdown occurs. Stop-loss positions are taken on the upper trendline. To profit from a descending triangle, traders must identify clear breakdowns and avoid false signals. They also need to consider that in case of no breakdown, the price may test the upper resistance before moving to the lower support line again.

Descending triangles are the opposite of ascending triangles because they have a horizontal upper trend line and a rising lower. Reversals can also occur with descending triangles, but they are generally considered to be bullish in nature. All triangle patterns provide traders with the opportunity to short the stock and set profit targets.

It is important to note that when trying to anticipate a potential breakout, we also want to look at other technical indicators. Simple moving averages help to confirm the signal to execute the trend trade. 

To help predict an upward breakout, when the price falls after a broken triangle, we check to see if the price of the breakout is above or below the 200-day simple moving average. The trend outperforms an average of 5% when the breakout is below the 200-day simple moving average. 

To help predict a downward breakout, the opposite is true. When the price breaks out above the 200-day simple moving average, a broken triangle sees a price increase of 13% compared to below the 200-day simple moving average. 

Why is the descending triangle important? 

The descending triangle is one of the most popular chart patterns because it is easy to understand and clearly shows demand, or lack thereof, in a stock. When the price falls below the support level, it indicates that the stock is likely to continue declining. This bearish pattern enables traders to generate above-average returns over a short period of time. Descending triangles can also indicate a reversal pattern or an uptrend, but in most cases, they represent a bearish continuation pattern.

Pattern Type: Continuity

Hint: Bearish

Breakout Confirmation: Confirmation of this pattern is near the low of the average trading volume.

Measurement: Subtract the high from the high and low of the pattern and then from the breakout level.

Volume: Volume declines during descending triangle formation, and expands on a breakout.

The descending triangle pattern can act as a great indicator of a future trend, but it is not without its limitations. It is a favorite among traders because the pattern is easy to recognize, but it is known for false breakouts, so traders need to manage their trades accordingly. To learn more about stock chart patterns and to fully take advantage of technical analysis, be sure to check out our complete library of predictable chart patterns. These include comprehensive descriptions and images so that you can identify important chart pattern scenarios and become a better trader.