Written and copyright © 2009-2014 by Thomas N. Bulkowski. All rights reserved.
Predicting Trend Changes: Summary
This article discusses how to use the apex of a triangle to predict a short-term change in the price trend.
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Visual Guide to Chart Patterns,
shown on the left, has a complete chapter on apex turning points, starting on page 289.
If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski
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Predicting Trend Changes: The Triangle Apex
In the book,
Elliott Wave Principle
, authors Frost and Prechter write that the market often turns when price reaches the apex of a triangle.
I tested this using three methods and found it to be true in all cases. Price reaches a minor high or minor low 75% of the time within a few days
of the triangle apex. Price turns from down to up or up to down 60% of the time.
As an example, the chart shows a symmetrical triangle on the daily scale. If you draw the two trendlines carefully along the top and bottom of the pattern, they converge
at the triangle apex sometime into the future. Expect price to turn near the date where the trendlines join.
In this example, the triangle apex is at A and the market turns at B. Clearly the turn is not a lasting one,
but price drops by 8%. It
is not a trend change as much as it is a pause in the upward price trend.
Predicting Trend Changes: Ascending Triangles
Not only does the triangle apex signal a reversal in symmetrical triangles, but other types of triangle patterns as well.
Outlined by two red trendlines is an ascending triangle shown in
Energy Conversion Devices (ENER) on the daily scale.
The triangle apex nears the date at A, right at the formation of a minor high. Price drops from
a high of $21.27 to a low of $11.83 (not shown), a plunge of 44% in just over 2 months.
Predicting Trend Changes: Descending Triangles
Pictured is a chart of Boeing (BA), on the daily scale. Outlined in red trendlines is a descending triangle.
Price breaks out downward from the triangle and crashes like an airplane out of gas.
In March, when the general market began a recovery, so too did Boeing.
Price takes off, rising to A in a stair-step move higher. At A, price reaches a high of $38.68 before dropping to
B, $34.21, a decline of almost 12%.
-- Thomas Bulkowski
Written and copyright © 2009-2014 by Thomas N. Bulkowski. All rights reserved. A psychiatrist is a person who will give you expensive answers that your wife will give you for free.