MARKET TACTICS - Triangle Pattern

MARKET TACTICS 

The analysis of Triangles should, of course, be tied in with other chart information such as trendlines, support and resistance, and other formations. The following guidelines are offered as a checklist for following Triangle developments:

1.  Odds are favorable that any Triangle will eventually result in a continuation of the trend that preceded it.

2.   The odds favoring a continuation decrease according to which of the four basic Triangles develops, in the following order: Ascending, Symmetrical, Descending, and Inverted.

3.   Purchases should be made at the lowest possible levels within a Triangle, or after the subsequent trend has been well defined, because Triangles are especially treacherous. They are subject to many false moves, and are among the least reliable of all chart formations.

The chart of Perkin Elmer graphically portrays two of the four major triangles described in Chapter 9. The configurations are outlined and labelled A, B, C, D. Triangle A is an ascending type. It will be recalled that the first implication of a triangle formation is that it points to a continuation of the prevailing trend. Secondly, the ascending type favours a trend continuation more often than the other types. Triangles B and C are Symmetrical or Isosceles types of average size. In this case, B marked a continuation of the trend and proved to mark the midway point in the overall advance. On the other hand, C evolved into a major reversal. Note how the initial breakout stopped at the uptrend line drawn along the Jan.-March lows. Soon, the trendline was broken on volume and a major downtrend was under way. Triangle D is a large symmetrical triangle, which proved to be a continuation pattern.

The only significant chart formations that appeared during the 1961 bull move for Litton were relatively large Triangles (A. B and C). This cluster of Triangles, which could be confusing to the analyst while forming, nevertheless indicated a continuation of trend. (The stock started the year around 88 and reached 166 in December). A and B are almost perfect Symmetrical or Isosceles Triangles and C is an unusually well-defined inverted triangle. The false downside breakout from C should not have been too disturbing to the chart technician, since this often occurs from this type of triangle. However, the inverted triangle signifies great uncertainty in the minds of buyers and sellers and, occurring at a high historical level, can warn of a top. In the above chart, major support levels were not violated. Incidentally, Triangles A and B taken together, began to look like the left and right shoulders of an incomplete large Head & Shoulders formation.

Throughout 1959, I960 and 1961, Studebaker was consistently among the live most active stocks on the New York Stock Exchange. On some days in 1959, it accounted for as much as 10 percent of the entire trading volume. This overall level of activity did not alter the significance of the chart formations. Coils and triangles predominated. A, which was a Descending Triangle, evolved into a major top. Prices returned to the apex of triangle A, and then formed a large Isosceles, or Symmetrical triangle, B. Triangles C and D are both descending types and correctly forecast the continuation of the decline. When the reader has finished the next chapter (10), a very pretty Pennant formation, which heralded the September-October advance, will come into focus.