In the study of technical analysis, triangles fall under the category of continuation patterns. There are three different looks of triangles, and each should be closely studied. These formations are, in no particular order, the ascending triangle, the descending triangle and the symmetrical triangle.

Triangles can be best described as horizontal trading patterns. At the start of its formation, the triangle is at its widest point. As the market continues to trade in a sideways pattern, the range of trading narrows, and the point of the triangle is formed. In its simplest form, the triangle shows losing interest in an issue, both from the buy side as well as the sell side: the supply line diminishes to meet the demand.

Think of the lower line of the triangle, or lower trendline, as the demand line, which represents support on the chart. At this point, the buyers of the issue outpace the sellers, and the stock’s price begins to rise. The supply line is the top line of the triangle and represents the overbought side of the market, when investors are going out taking profits with them.