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Last time I looked at some typical turning point formations. There are two further sets of patterns that it is as well to be aware of, as they can be equally profitable if correctly spotted.

The first of these are the triangles, which, as their name suggests, are typified by price action gradually constricting over time. These patterns develop over weeks and even months rather than days to form either a rising or falling wedge, a symmetrical triangle or either an upward or downward-sloping right-angle triangle, with prices seemingly constrained by the invisible border lines of these forming shapes.

Triangles typically can give a clue both to the direction of the eventual price breakout and to the likely target for the breakout move, so they can prove to be well worth searching for.

A symmetrical triangle can break either upward or downward. As with most technical analysis, the safest strategy is to wait for the signal that this pattern has completed rather than to guess. Patience has its reward though it can be hard not to jump in too early.

With the right-angle triangle patterns the direction of the breakout is expected through the horizontal side, so an upward-sloping right-angle triangle that encounters resistance at a set level and appears to bounce off this level with less and less vigour, will likely make an upside breakout.

The opposite is the case for downward-sloping right-angle triangles. The rising or falling wedge is the odd one out, as it is usually a precursor to a change in direction: a rising wedge signals exhaustion while a falling wedge suggests the opposite.

With triangles and to some extent wedges, an eventual price objective can be established by measuring the vertical distance between the defining trendlines where price action first touches the second line (approximately the widest point), then using this value as an extension from the final pattern breakout point to give the expected target for the move.

Ideally we would expect these patterns’ breakouts to occur approximately two thirds of the way to the triangle’s apex (the intersection of the converging sides at the right of the chart). If this point is passed or there have been any false breaks then the formation is suspect. If price action moves through the apex of the pattern then it should be cast aside as unreliable.

Next week we will look at continuation formations.