TRIANGLES

1. The market value of a security is determined solely by the interaction of supply and demand.

2. Supply and demand are governed at any given moment by many hundreds of factors, some
rational and some irrational. Information, opinions, moods, guesses (shrewd or otherwise) as to
the future combine with blind necessities in this equation. No ordinary man can hope to grasp
and weigh them all, but the market does this automatically.

3. Disregarding Minor Fluctuations, prices move in trends that persist for an appreciable length
of time.

4. Changes in trend, which represent an important shift in the balance between supply and
demand, however caused, are detectable sooner or later in the action of the market itself.

Symmetrical Triangles

The most common form of a Triangle is composed of a series of price fluctuations, each of
which is smaller than its predecessor , each Minor Top failing to attain the height of the
preceding rally, and each Minor Recession stopping above the level of the preceding Bottom.
The result is a sort of contracting Dow Line on the chart a sideways price area or trading
range whose Top can be more or less accurately defined by a down-slanting boundary line and
whose Bottom can be similarly bounded by an up-slanting line. This type of Triangle is called a
Symmetrical Triangle. If we wanted to make a more accurate application of the language of
geometry, we might better call it an Acute Triangle, since it is not at all necessary that its Top
and Bottom boundaries be of equal length or, in other words, make the same angle with the
horizontal axis. However, there is a very strong tendency in these formations to approximate the
symmetrical form; so, the established name will do well enough. This pattern is also sometimes
referred to as a Coil. While the process of contraction or coiling, which makes up the price
action of the Symmetrical Triangle Pattern, is going on, trading activity exhibits a diminishing
trend, irregularly perhaps, but nevertheless quite noticeably as time goes on. The converging
upper and lower boundary lines of the price formation come together somewhere out to the right
(the future in the time sense) of the chart, at the apex of our Triangle. As prices work their way
along in narrower and narrower fluctuations toward the apex, volume ebbs to an abnormally low
daily turnover. Then, if we are dealing with a typical example, comes the action which first
suggested the name Coil. For suddenly and without warning, as though a coil spring had been
wound tighter and tighter and then snapped free, prices break out of their Triangle with a notable
pickup in volume, and leap away in a strong move which tends to approximate in extent the up
or down move that preceded its formation. There is seldom any clue given on the one chart
containing the Triangle to tell in which direction prices are going to break out of the pattern until
that action finally occurs. Sometimes you can get a pretty good idea of what is likely to happen
by observing what is going on at the same time in the charts of other stocks (which is an
important topic for later discussion), but often, there is nothing to do but wait until the market
makes up its mind which way to go. And making up its mind is just what the market seems to
be doing when it builds a Triangle; everything about this pattern appears to exemplify doubt,
vacillation, and stalling until finally a decision is reached.

A fine Symmetrical Triangle Reversal Formation on a weekly chart. Upper boundary sloping
down from February 1942 recovery high at 21 and lower boundary sloping up from Pearl
Harbor Bottom at 16 converge to an apex at about 18 . From this Major Bottom Pattern,
HD advanced to 45 in 1946. Note shrinkage in volume as pattern formed, and increase as price
broke out through Top in October 1942. Breakout came not quite three quarters of the way over
from first Top to apex.
How Prices Break Out of a Symmetrical Triangle

Prices may move out of a Symmetrical Triangle either up or down. There is seldom, if ever, as
we have said above, any clue as to direction until the move has actually started, i.e., until prices
have broken out of their triangular area of doubt in decisive fashion. In a very general way, the
precepts we have laid down for breakouts from Head-and-Shoulders Formations apply here as
well. For example, the margin by which prices should close beyond the pattern lines is the same,
roughly 3%. It is equally essential that an upside break in prices be confirmed by a marked
increase in trading volume; lacking volume, do not trust the price achievement. But a downside
breakout, again as in the case of the Head-and-Shoulders, does not require confirmation by a
pickup in activity. As a matter of record, volume does visibly increase in most cases, but in a
majority of down breaks, not to any notable extent until after prices have fallen below the level
of the last preceding Minor Bottom within the Triangle, which, as you can see, may be several
points lower than the boundary line at the place (date) of the actual breakout. The curious fact is
that a downside breakout from a Symmetrical Triangle which is attended right from the start by
conspicuously heavy volume is much more apt to be a false signal rather than the start of a
genuine downtrend that will be worth following. This is particularly true if the break occurs after
prices have worked their way well out into the apex of the Triangle; a high volume crack then
frequently we might even say usually develops into a 2- or 3-day shakeout which
quickly reverses itself and is followed by a genuine move in the up direction. All of the above
the reader will have undoubtedly found most disconcerting. Here is a very pretty technical
pattern and it cannot always be trusted. Unfortunately, Symmetrical Triangles are subject to false
moves to a far greater extent than the Head-and-Shoulders or any of the other formations we
have discussed or will discuss later. Unfortunately, some of these false moves cannot be
identified as such until after a commitment has been risked (although good trading tactics should
prevent their occasioning much more than a trivial loss). And, unfortunately again, even a typical
shakeout, such as we described in the preceding paragraph, may produce a double cross,
proceeding right on down in a genuine decline. No technical chart formation is 100% reliable,
and, of all, our present subject is the worst offender. But most Symmetrical Triangles lacking
an actual statistical count, our experience would suggest more than two thirds of them behave
themselves properly, produce no false signals which cannot be spotted before any damage is
done. Upside breakouts on high volume may be premature in the sense that prices return to
pattern and do some more work there before the genuine uptrend gets under way, but they
seldom are false. We shall have a little more to say about false signals in this chapter and more
later on what we trust will be helpful in developing the experience a trader needs to defend
himself against them.