Triangle formations are referred to as "reversal" patterns because they can precipitate a change in direction. Triangles visually depict the struggle between buyers and sellers that becomes more intense as time passes and the triangle narrows.

Symmetrical triangles are defined by two trend lines which form borders on a gradually narrowing trading range. One line is drawn across the declining tops and the other across the rising bottoms. The name implies that the two lines must converge on equal angles, but, in fact, any triangle with a declining top and rising bottom is considered to be a symmetrical triangle.

A buy signal is given if the price index breaks above the top edge, and a sell signal if it breaks below the bottom edge.After a breakout, the next event we expect is a retracement or snapback toward the point of breakout. In the chart above the top of the triangle, which was resistance prior to the breakout, now becomes support.

In the next chart we see that there are no guarantees that prices will continue in the expected direction after an apparent pattern resolution. First there is a break down out of the triangle, but it is only a final shakeout or bear trap. Once the sellers have all been flushed out, price finds support on the 200-EMA, then reverses up through the top of the triangle.

Always use a stop loss.