Triangles are among the most reliable of the continuation patterns. Instead of warning of market reversals, continuation patterns are usually resolved in the direction of the original trend. There are three types of triangles that have forecasting value-symmetrical, ascending and descending triangles. Although these patterns sometimes mark price reversals, they usually just represent pauses in the prevailing trend.
The symmetrical triangle (also called the coil) is distinguished by sideways activity with prices fluctuating between two converging trendlines. The upper line is declining and the lower line is rising. Such a pattern describes a situation where buying and selling pressure are in balance. Somewhere between the half-way and the three-quarters point in the pattern, measured in calendar time from the left of the pattern to the point where the two lines meet at the right (the apex), the pattern should be resolved by a breakout. In other words, prices will close beyond one of the two converging trendlines.
Bearish Symmetrical Triangle
The Ascending Triangle has a flat upper line and a rising lower line. Since buyers are more aggressive than sellers, this is usually a bullish pattern.
An example of an ascending triangle. The upper line is flat, while the lower line is rising. This is usually a bullish pattern and is completed when prices close above the upper line.
The descending triangle has a declining upper line and a flat lower line. Since sellers are more aggressive than buyers, this is usually a bearish pattern.
An example of a descending triangle which is normally a bearish signal.
The measuring technique for all three triangles is the same. Measure the height of the triangle at the widest point to the left of the pattern and measure that vertical distance from the point where either trendline is broken. While the ascending and descending triangles have a built-in bias, the symmetrical triangle is inherently neutral. Since it is usually a continuation pattern, however, the symmetrical triangle does have forecasting value and implies that the prior trend will be resumed.