How to Read Stock Market Chart
Ascending triangles indicate an upward bias, with a flat top and a se-
ries of higher lows. Generally, the bottom slope of the triangle coincides
with the trend or a trend to be. The example on the soybean chart, coming after an island gap and a gap higher, indicates a very strong upside reaction could occur, which, in fact, did happen. In this case, the market was too impatient to fill in the entire triangle with price action between the flat top resistance line and the upward sloping support line to complete the price action to form the apex of the triangle.
Similarly, the descending triangle indicates a downward bias–a flat
bottom support off which prices bounce for a time and a series of lower
highs that come together into an apex. It also flows with the direction of the
trend or the trend to be.
As a rule, triangles are used as continuation patterns and serve as a
measuring guide for the extent of a move. The length of time it takes the
triangle or congestion area to form is regarded as the distance a market will
move once it breaks out of the triangle pattern. The more powerful break-
outs seem to occur when the triangle does not entirely complete the coil-
ing process to the apex or tip of the triangle–the market appears to be
impatient to advance or continue the move, as with the ascending triangle
on the soybean chart.
If you buy the upside breakout of a symmetrical triangle in an uptrending
market, then you should place a stop below the first low point that estab-
lishes the bottom support line. The reverse is true when you sell a downside
breakout in a downtrend.
Here is a cautionary note: Triangles, just like other techniques, are not
a completely reliable trading pattern. They do have false breakouts, and
traders need to be aware that the longer the triangle takes to form, the less
power the breakout usually has behind it. Generally speaking, based on a
daily chart time frame, triangles can take 6 to 10 trading days or up to 2
weeks to develop, occasionally even longer. They can develop on intraday
charts such as 15-minute and even 60-minute charts, and they can show up
on weekly charts.
Monthly charts occasionally show triangles, but considering the length
of time and rolling out of expired contracts in commodity markets, triangles
are not so prevalent in my research. Due to the difference of seasonal price
pressures on most commodities–harvest supply pressures for agriculture
products, for example–pricing of deferred contracts makes triangles on
monthly charts ineffective, in my opinion.