Technical Analysis – Price Patterns (Continuation – part 1)

Continuation price patterns help investors determine, future trend movements. In my opinion, unlike reversal patterns their prime asset is not informing investors when to open a position on the market, but what to do with already opened transactions. On the other hand, it is possible to open transactions on the basis of continuation price patterns and this will also be described.

Triangle

Triangles are price patterns, that portray short market corrections. The breaking of the triangle is a signal to trend continuation.
There are three main types of triangles and they are:

1. Symmetrical Triangle






A symmetrical triangle is characterized by trend lines linking tops and bottoms, which narrow down, coming closer and closer to each other. If point A is broken in the diagram above then:
- If the investor has an long position open, then this will be an assurance that the position should be held and that the bulls are growing in power.
- If the investor does not have any position, then opening a long position is possible.
On the other hand if the bottom line of the triangle is broken then:
- If the investor has a long position open, then this will be the first signal that the bulls are losing power and that the position may be closed.
- If the investor does not have any position, then in my opinion nothing should be done, because breaking the bottom line is only an initial signal of trend change.

2. Increasing Triangle






An increasing triangle is characterized by an upper trend line that is horizontal, and a bottom trend line which becomes more and more dynamic in the increase trend, signaling the strengthening bulls.
The interpretation of this price pattern is exactly the same as above.

3. Decreasing Triangle





A decreasing triangle is characterized by a bottom trend line that is horizontal, and a top trend line which becomes more dynamic in the decrease trend, signaling the strengthening bears.
The interpretation of this price pattern is exactly the same as above.


Omar Arnaout
X-Trade Brokers Dom Maklerski S.A.
Omar.arnaout@xtb.com