Springing from coilsThe formation gets its name from the way prices contract and suddenly spring out of this pattern like a tight coil spring. One caution about this formation: It's best if prices break out of the formation while halfway to three-quarters of the way to the triangle's apex. If prices reach the apex, a strong move in either direction is less likely.
Ascending and descending triangles are similar to coils but are much better at predicting the direction prices will take. Prices should break to the flat side of the triangle.
Price objectives from ascending and descending triangles can be obtained two ways. The easiest is to add the length of the left side of the triangle to the triangle's flat side.
Another method of projecting price is to draw a line parallel to the sloping line from the beginning of the triangle. Expect prices to rise or fall out of the triangle formation until they reach this parallel line.
More objectivesIn the lesson on trends, we mentioned double and triple tops and bottoms. These formations also provide us with objectives. Once a double bottom is completed, prices should rise at least as far as the distance from the bottom of the "W" to the breakout point.
A double bottom is confirmed when prices close above the center of the "W" formation. This is referred to as the breakout. The difference from the bottom of the formation to the top gives a price objective. Targets for price declines from double tops are figured the same way.
Often, prices will retest the breakout point after completing the formation. After a double top is completed, prices may briefly rebound to test the resistance, which is the same point where the original double top was completed.
I know, it all sounds a bit complicated right? I promise you though, if you put a little practice and effort into learning how to spot these patterns, it will pay off in spades for you
Time to take that first step...
Can you locate the Flag and Pennant formations in this chart :
The flag and pennant formations both held true, achieving - and exceeding - their price objectives. The flag's pole was about 0.6 points tall and, once the flag formation was complete the price rose about 1.1 points from the breakout point. The pennant's pole was about 1.5 points tall, and the price rose about 1.75 points from the breakout point