By far one of the most accurate and often used chart patterns, the triangle focuses on establishing what trend has broken out of a consolidation period.
Overall Concept
The triangle is a fairly simple pattern formed by a converging stock. Also called a coil, the purpose of this pattern is to see if a particular trend will continue.
The pattern often springs up in a stock that has experience volatile times, and resistance and support are about to converge. This leads a funneling attribute, which causes the stock to breakout one of two ways: down or up.
Concept in Action
In the chart, we see the stock contracting from its previous highs and low. The prior trend was bearish, and the breakout concluded that the trend was continuing.
Either taking the length of the triangle or creating a trend line in direction of break can establish the price target. If the stock broke out positive, then we could have drawn a trend line from the highest point in the triangle, rather then the lowest.
Breakout cannot be confirmed until it has actually taken place; otherwise, we assume the stock is still coiling down.
Important Reminders and Notes
1. Cannot establish anything until full breakout has occurred.
2. Also known has coil.
More often than not, the triangle will find that the stock tends to continue the original trend. If used correctly, the triangle can easily predict price movement.