On Symmetrical Triangles

You might have seen triangle formations and wondered what they were all about. You might have been caught on the losing side of a descending triangle and wondered what happened. For those of you who've wondered what was going on, here's the first part of a two-part refresher course on the three basic types of triangle formations and how to use them in your investment decisions.

"Before I buy a stock, I search the price chart for familiar patterns. The last thing I want to do is to purchase a stock, only to see it drop down beyond my stop, resulting in a loss. Checking for technical patterns allows me to look for some indication that I should not buy a stock. Over time, I find that my memory for various chart patterns gets somewhat fuzzy and I need to refresh my memory for what to look for. Here, then, is a description of symmetrical triangle formations and their significance in my battle plan in the market."

"Figure 1 shows a typical symmetrical triangle in ice cream manufacturer Ben & Jerry's, Inc. [BJICA]. The triangle was formed in May 1995 with a rising stock price and diminishing volume. The stock hit a high of 15-1/2 for several days, then retreated to 13-1/2. It rose to 14-3/4 and again retreated to 13-1/2. Over the following days, the daily highs and lows narrowed until the spread was just a quarter of a point; the high was 14 and the low was 13-3/4 on July 31. Volume on that day had diminished to 10,500 shares. The next day volume exploded to 300,000 shares and the price took off to 17-1/4. Welcome to the world of symmetrical triangles!"

Excerpted from an article originally published in the October 1996 issue of Technical Analysis of STOCKS & COMMODITIES magazine. 
© Copyright 1996, Technical Analysis, Inc. All rights reserved.

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