BASIC MODELS OF THE CONTINUATION OF THE TREND’S MOVE
Graphic configurations which will be studies in this chapter are called the models of the trends continuation. These models usually mean that the period of the price stagnation indicated on the graph is just a pause in the main trend development and that the direction of the trend will be the same after they end.
The second criterion between the fracture and continuation models is the duration of their formation. The construction of the first ones, which display serious changes on the price dynamics, require more time. The second ones are shorter. It is better to call them short-term and intermediate.
Note how often we use the word “usually”.
This is due to the fact that the interpretation of graphic models is subject, rather, to general patterns than to rigid rules. There are always exceptions in it. Even the elementary classification of price models is sometimes difficult.
There are always exceptions in it. Even the elementary classification of price models is sometimes difficult. Typically, triangles are models of continuation of the trend, but at times they show a fracture of the trend. Although triangles are usually considered intermediate models, they sometimes appear on long-term graphs reflecting the development of the main trend. A variation of the triangle - an inverted triangle - usually means a fracture of the main upward trend. At times, even the "head and shoulders" - the most famous basic model of a fracture - may indicate a phase of consolidation
We will begin a discussion of patterns of continuation of the trend with consideration of triangles. There are three types of triangles - symmetrical, ascending and descending (sometimes called the fourth kind, known as the "expanding triangle" or "broadening formation," but it will be considered below). All triangles differ in shape and have different prognostic functions.
A symmetrical triangle or "spiral" is, usually, a continuation of the trend. It marks a pause in the already existing trend, after which the latter resumes.
An example of a bullish symmetrical triangle. Note the two converging lines. The model ends when the closing price is fixed on the market outside of any of the two trend lines . The vertical line on the left is the base of the model, and the point on the right where the two lines meet is the vertex -2.91% .
The minimum requirement for each triangle is the presence of four control points. To hold the trend line , as we remember, two points are always needed. Thus, in order to draw two converging trend lines , each of them must pass through at least two points.
The completion of the triangle model takes some time, which is determined by the point of convergence of the two lines that is the top of the model. Usually, the price breakout should be in the direction of the previous trend, at a distance of half to 3/4 of the width of the triangle horizontally.
The ASCENDING AND DISCENDING TRIANGLE
Ascending and descending triangles are a kind of symmetric but have different prognostic functions. The figure below shows an example of an ascending triangle . Note that the top line of the trend is horizontal, and the bottom line is up. This model means that buyers are more active than sellers. Such a model is considered to be a bullish one and usually ends with a price breakout beyond the upper line.
This model is completed when the closing price goes beyond the upper trend line significantly. A breakthrough must be accompanied by a sharp increase in volume . The upper resistance line turns into a support level with subsequent price drops.
The minimum price benchmark is determined by measuring the height of the triangle (AB) and projecting this distance up from the breakout point C.
The descending triangle model is a mirror reflection of the ascending triangle and is often considered a bearish model. Have a look at the downward upper line and horizontal bottom line on the picture below. This configuration which indicates that the more active the sellers are than the buyers usually ends with the future price drop.
Completion of the model usually occurs with the closing price going beyond the lower trend line crucially and is accompanied by an increase in volume . Sometimes this is followed by a price return which meets resistance on the lower trend line . The measurement procedure for this model is exactly the same as for the ascending triangle . You should measure the height at the bottom on the left side of the model, and then project the distance down from the breakout point.