This chart caught my attention today as a potential example of a classic continuation triangle.
While triangles can often be traded in either direction (depending on whether they break the triangle support or resistance), my bias towards favouring this as a sell set up is based on the following factors
- Having so far corrected only 38.2% of the last major rally, the chances are this retracement has further to go
- The steep decline into this pattern has that “flagpole” look often associated with the classic pennant which is a continuation pattern
- The fast stochastics on the Weekly Chart are now trending down having recently dropped out of the overbought zone above 80.
A typical approach to strategy with a set up like this would be:
- Sell on a break of the triangle support after allowing a price filter to reduce the risk of a false break
- Place the inititial stop behind the triangle resistance line
- Use the Fibonacci cluster level shown on the chart below as a profit objective. This consists of the 61.8% retracement level and a projection that the next swing down will be the same size as the first swing down to the triangle