The Traders Wheel
11/01/98 by Alan Farley
Classic triangle patterns dont fit
easily into simple continuation or reversal trading strategies. Depending on their unique
characteristics and position within the larger trend, they may foretell either event.
While certain variations lean toward a favored breakout, the artistic symmetrical
triangle has zero bias to either outcome as the formation suggests a state of
perfect balance. Sharp traders closely watch the tug and pull within the developing
pattern to identify the eventual winning play.
Trading power within well-formed triangles intensifies as
they shift from range into breakout mode. When price finally surges into directional
trend, a powerful vertical thrust quickly develops. While false moves occur at these apex
points, triangles have a higher degree of reliability than most breakouts.
The angle of inclination defines this patterns
identity. Ascending triangles rise again and again toward a ceiling
resistance level. Symmetrical triangles surge rhythmically across
both sides of a horizontal axis dividing the formation right through the middle. The
bearish descending triangle bounces weakly off bottom support.
High volatility marks the birth of new triangles. But as
they approach their termination points, activity decreases sharply. This highlights a
major risk in successfully trading these patterns. Should no ignition spark the expected
breakout, the chart may flat-line, with price meandering endlessly in sideways motion.
Traders caught in this phenomenon are advised to close positions and move to more fruitful endeavors.