Why the triangle pattern is used for continuation price patterns
Must-know: A complete guide to technical analysis (Part 8 of 16)
Continuation price patterns
In technical analysis, the major types of continuation price patterns are:
Triangles
Rectangles
Flags
Pennants
These patterns form over a few months in an existing uptrend or downtrend.
Triangle pattern
The triangle pattern looks like a triangle. It forms in the middle of a trend. The triangle pattern forms because investors think that the stock price won’t go much higher in an uptrend or lower in a downtrend. This trading activity causes a consolidation phase in the stock trend.
There are three types of triangle patterns:
Ascending triangle
Descending triangle
Symmetrical triangle
Ascending triangle pattern
The above chart shows the ascending triangle pattern for a NASDAQ stock.
In this triangle pattern, one trend line connects the consecutive bottoms and another horizontal line connects the price peaks. Both of the lines meet to form an ascending triangle.
In an uptrend, ascending triangles form when there’s consistent selling pressure at a resistance level. High sell orders are placed at resistance levels that increase the supply of stock compared to the demand. The price decreases. An example is a hedge fund selling stock at a specific price level. Buying and selling activity causes the stock price to rise and fall. This forms the ascending triangle.
Ascending triangles occurs in an uptrend. The breakout and trend identification is useful for entry and exit signals.
Applying continuation pattern concepts
In technical analysis, the continuation pattern concept can be applied to companies like Range Resources (RRC), Chesapeake Energy (CHK), SM Energy (SM), and Linn Energy (LINE). These companies are part of energy exchange-traded funds (or ETFs) like the Vanguard Energy ETF (VDE) and the SPDR S&P Oil & Gas Exploration & Production ETF.
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