Sometimes price is caught between two lines and moves back and forth for a while: triangles whose top and bottom get closer and closer (an ascending triangle with a flat ceiling, a descending triangle with a flat floor, and a symmetrical triangle where both sides close in together) and trading ranges with a flat top and bottom. The heart of this lesson is "wait to see which way it breaks". Ascending and descending triangles have a side they commonly broke toward, but symmetrical triangles and trading ranges can break either way, so follow once price closes outside a line. We also look at a wrong example that broke upward and still collapsed.
Price caught between two lines
All four shapes in this lesson are shapes where price is caught between two lines and moves back and forth for a while. Draw one line through the highs and one through the lows: if the two lines come together toward a point, it is a triangle; if they run flat and parallel, it is a trading range. While price is caught, it is read as not yet decided whether buyers or sellers will win, and you follow the side where it breaks out with a close outside a line. Unlike the flags of lesson 4, there need not be a steep pole in front, and these shapes often take longer, over dozens of candles. The two grey dotted lines in the charts below are those lines.
A sideways move capped above and below was covered under the name "range" in the "Sideways move" section of Basics lesson 2. The trading range in this lesson is exactly that, and a triangle is that box with one or both sides sloping so that it narrows.
Ascending triangle
The top keeps getting capped at almost the same height, while the bottom stops at a higher level than before each time price is pushed back. The flat ceiling and the rising floor meet to look like a right triangle. It is read as: some people keep selling at the same level, but buyers are taking the shares at higher and higher prices.
So price often broke out with a close above the ceiling. Treat a close above the ceiling as a place to buy, and a close below the rising floor line as your exit.
Drag the chart sideways with a finger or the mouse to move it, and pinch with two fingers to zoom in. With a keyboard, click the chart, then use ←/→ to move and +/− to zoom.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. Of the two grey dotted lines, the upper one is almost horizontal and the lower one slopes up to the right, so the gap keeps narrowing. The arrows are the highs (↓) and lows (↑) inside: the highs land at almost the same height, the lows at higher and higher levels. Candle 80 (↑) closes above the extended upper line, and after that the price climbs like a staircase. The lower panel shows volume. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
100 daily candles of one stock. From around candle 34, a rising price kept getting capped near the same height. But each time it was pushed back, it stopped at a higher level than before, so the line through the lows moved toward the ceiling. Some candles briefly went over the ceiling during the day, but none closed above it. The candle just before candle 80 closed a tiny bit above the ceiling line, and candle 80 closed clearly above it on rising volume. After that, the price rose without a single candle closing below the ceiling line, and near the end it was well above the ceiling.
Descending triangle
An ascending triangle turned upside down. The bottom is held up several times at almost the same height, while the rebounds turn down at lower and lower levels. It is read as: the buyers holding the floor stay put, but sellers are willing to sell at lower and lower prices.
So price often broke out with a close below the floor. There is no short selling in the game, so use it as a signal to "not buy new just because the floor holds" and to "sell on a close below the floor if you are holding".
Charts by TradingView Lightweight Charts™
A chart of 100 candles. Of the two grey dotted lines, the upper one runs a long way down to the right from the high of candle 16, and the lower one is almost horizontal, so the gap keeps narrowing. Candle 80 (↓) closes below the extended lower line, moves around that height for a few candles, and then the price falls a long way. The lower panel shows volume. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
In this stock, the tops of the rebounds mostly got lower and lower: the upper line starting from the high of candle 16 runs a long way down. The floor, on the other hand, was held up several times near the same height. With the ceiling coming down and the floor staying put, the floor side grows heavier and heavier. Candle 80 closed below the extended floor line. This candle’s volume was at a normal level, and the next few candles closed just above and below the extended floor line on much higher volume: near the apex where the two lines meet, price neither clearly went further outside the line nor clearly came back inside, but moved back and forth across it. Then it started falling again, and near the end it was well below the floor.
Symmetrical triangle
The highs get lower and the lows get higher, so the upper and lower lines come together in the middle. Neither buyers nor sellers back off, and it is read as a state where only the size of each swing keeps shrinking. It resembles the pennant of lesson 4, but it has no pole in front and lasts much longer.
A symmetrical triangle can break out either way. The shape itself has no direction. The drawing shows a break upward from a rise, but that is just one case; breaks downward are common too. So do not guess in advance and get in. Set both in advance, a break up as a place to buy and a break down as a place not to buy or to sell, and wait.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. Of the two grey dotted lines, the upper one slopes down to the right and the lower one slopes up to the right, so the two lines come together in the middle. The arrows are the highs (↓) and lows (↑) inside. Candle 80 (↑) jumps sharply in one day and closes well above the extended upper line, and after that the price rises further without coming back inside the lines. The lower panel shows volume. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
From around candle 24, this stock narrowed as the highs got lower and the lows mostly got higher. As it narrowed, volume shrank until about the middle, then started rising again a few candles before the breakout. Until the two lines were close to meeting, it did not close outside either line; then candle 80 rose sharply and closed above the upper line on volume well over ten times the usual. After that it rose further without coming back inside the lines. This chart broke upward, but the symmetrical triangle itself did not tell the direction: the same shape commonly breaks downward too.
Rectangle (trading range)
Price moves back and forth several times between two lines that are both flat. It is the same as the sideways move from Basics lesson 2, so it is called a trading range. It is read as a balance where sellers keep winning at the ceiling and buyers keep winning at the floor.
While price is inside the box, you can buy near the floor and sell near the ceiling. When price closes outside the box, the balance is read as broken and you follow that direction. The drawing shows a break upward, but as in the chart below, it can break downward too. Wait until it breaks to see which way.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The two grey dotted lines run almost flat and parallel to form a box, and the price goes up and down between them several times. The arrows are the lows (↑) and highs (↓) inside the box. Candle 80 (↓) closes just below the extended lower line, and from the next candle the price drops sharply. The lower panel shows volume. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
From around candle 36, this stock moved back and forth for a while inside a box capped above and below. Near the ceiling it turned down, and near the floor it rose again. Some candles briefly poked outside the box during the day, but none closed outside it. Candle 80 closed below the extended floor line, but it left the box by only a tiny margin on low volume, so on its own it was hard to tell apart from a wobble inside the band. But the next candle dropped sharply on nearly three times the usual volume, and after that the price never came back inside the box; near the end it was well below the floor of the box.
When it breaks: confirm with a close outside the line
The sides of triangles and boxes are the same as the support and resistance lines of lesson 1. Price is treated as having broken out when it closes outside a line; poking out during the day and coming back inside may be a false breakout, as seen in lesson 1, "Breakouts and false breakouts".
The lines end at the last high or low, so compare with the height of the line extended to the right. In the symmetrical triangle chart above, volume jumped on the breakout candle; in the trading range chart, on the candle after it. As in the descending triangle chart, sometimes the breakout candle’s volume was at a normal level and price still went that way, so use volume as one of several checks; lesson 7 covers it in detail.
It is also common for price to move around near the line’s height for a few candles after breaking out before moving on. In the descending triangle chart above, after closing below the floor line, price closed just above and below that line for a few candles before falling. As seen in lesson 1, a line is a band, so small wobbles right near the line are read as moves inside the band. On the other hand, if price clearly comes back inside the lines and holds there, or clearly closes outside the opposite line, that is read as a sign the breakout was wrong (see the wrong example below).
A wrong example: an ascending triangle broke upward, then collapsed
Even a close above the ceiling does not always lead that way. In the chart below, both the shape and the direction of the break were by the textbook, yet within a few candles the price went the other way.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. Of the two grey dotted lines, the upper one is almost horizontal and the lower one slopes up to the right, narrowing into an ascending triangle. Candle 80 (↑) closes above the extended upper line, but the next candle comes back below it. After that it closes above the upper line once more, but on the very next candle it falls to below the lower line, and a few candles later a candle that opens far below the previous close drops sharply; near the end the price is below the floor where the triangle began. The lower panel shows volume. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
This stock made a textbook ascending triangle, capped at the same height above and rising below. Inside it, there was already one candle that closed a tiny bit above the upper line and came back on the very next candle. Candle 80 closed above the upper line and seemed to break upward, but it cleared the line by only a little, and its volume was about what was usual inside the triangle. The next candle came back below the line, and right after it closed above once more, the next candle instead fell below the lower line. A few candles later, a candle that opened far below the previous close dropped sharply on several times the usual volume, and near the end the price was even lower than the floor where the triangle began.
- It cleared the line by only a little, and volume was about what was usual inside the triangle. It closed only slightly above the upper line. As seen in lesson 1, a line is a band, and a small crossing inside the band can be a false breakout; this triangle had already had one such candle.
- The lower line was the exit. An ascending triangle rests on rising lows, and a close below the rising floor line breaks that base. This chart broke that point four candles after crossing above, and getting out then would have avoided the big fall that followed.
- A candle that drops sharply in a single day cannot be seen in advance from the shape. Such candles often come from news outside the chart. What keeps losses small is not "the shape was right, so hold on" but getting out at the point you set.
Using triangles and trading ranges in the game
When a match starts, the first 60 candles are already on the chart. Triangles and trading ranges often take dozens of candles to form, so the shape may already be visible in the preview candles. Join the highs and the lows to draw two lines, and wait to see outside which line price closes. There is no short selling in the game, so a break downward is used to decide "do not buy new" and "sell if you are holding".
| What you see | A common response |
|---|---|
| A flat ceiling and a rising floor narrow together (ascending triangle) | Treat a clear close above the upper line as a place to buy. Decide in advance to get out on a close below the rising floor line. |
| A flat floor and a falling ceiling narrow together (descending triangle) | Do not buy new just because the floor holds. If you are holding, treat a close below the lower line as a place to sell. |
| The top and bottom narrow together (symmetrical triangle) | Do not decide the direction in advance. Set both, a close above as a place to buy and a close below as a place not to buy or to sell, and wait. |
| Price moves between a flat top and a flat bottom (trading range) | If the box is wide enough, buy near the floor and sell near the ceiling. When price closes outside the box, treat the box as over: above is a place to buy, below a place to sell. |
| Price closes outside a line, then clearly comes back inside and holds | It may have been a false breakout. Tell it apart from small wobbles right near the line. Get out at the point you set in advance, and wait until a clear point shows up again. |
Watch out for
- Do not guess the direction in advance. Symmetrical triangles and trading ranges can break either way, and even an ascending triangle that broke upward can soon collapse, as in the wrong example above. Set an exit even after the breakout.
- A line is a band. The highs and lows usually do not sit exactly on the line and cross it a little. Rather than a brief poke during the day or a close just barely over, look for whether price clearly leaves and holds outside.
- Look again at small shapes. A narrow range of only a few candles may just be a pause. If there is a steep pole in front, read it as a flag or pennant from lesson 4.
- Trade count: a match allows up to 10 trades (a buy counts as one and a sell counts as one). Buying and selling at every swing inside a range uses them up fast, so trade inside the box only when it is wide enough, and otherwise wait for the breakout.
This lesson looked at "where it breaks out". The next lesson covers Fibonacci retracement, which measures "how far price gives back" after a big rise or fall.