PYTHAGORAS and his chums used to worship triangles. They believed that the magic of numbers was the ultimate in human wisdom. Traders might find they will too, once they learn how to spot a triangle pattern forming on their trading charts, since it is one of the most common patterns to develop before a breakout. We spoke to James A. Hyerczyk of Autochartist, the automated chart software provider, to explain how to spot them. To make the trends clearer, the charts below have been marked up with green resistance levels (the level that the market struggles to exceed), blue support levels (the level that the market fails to fall through) and grey boxes for the minimum target zones for the breakout (here, where the price breaks above resistance, and profit can be made from a steep climb higher).
1. Triangle chart pattern for Australian dollar-dollar. 30 minute chart. As you can see from this chart a basic triangle can be spotted when the channel between the resistance and support levels narrows.
2. Triangle chart pattern for euro-Australian dollar. 15 minute chart. From this chart we can see that the tighter the triangle shape becomes, the more pronounced the breakout will be.
3. Ascending triangle chart pattern for STOXX50. This chart demonstrates that you should also be watching for triangles being formed from the support level, even if you see a flat resistance level.