====== P&F Triangles ======

===== Introduction =====

Triangles form as prices contract on a P&F chart. The X-Columns (up) form successive lower highs as the O-Columns (down) form successive higher lows. The inability of prices to break from this contracting range reflects a standoff between buying pressure and selling pressure. This standoff is resolved with the next P&F signal. A Double Top Breakout makes the triangle bullish, while a Double Bottom Breakdown makes the triangle bearish. 

===== Triangle Width =====

Triangles have at least five columns. The first four columns form the triangle and the fifth column marks the breakout or breakdown. There are at least two X-Columns with the second column forming a lower high. There are at least two O-Columns with the second column forming a higher low. Triangles can extend more than four columns as long as subsequent X-Columns continue forming lower highs and subsequent O-Columns form a higher low. Triangles are neutral patterns dependent on the breakout or breakdown for the signal. 

===== Triangle Breakout =====

A Double Top Breakout signals a bullish resolution to the triangle pattern. Note that a trend line break is not enough. A basic P&F buy signal, such as a Double Top Breakout, is required to complete the triangle and trigger the bullish signal.

{{:chart_analysis:pnf_charts:pnf_triangles:pnftri-1-chk-bull.png|P&F Triangle - Chart 1}} 

The chart above shows Chesapeake Energy (CHK) with a triangle forming in 2010. The blue lines outline the triangle. Note that these lines do not appear on the chart; they were simply added to make the pattern more visible. There were two O-Columns with higher lows and one X-Column with a lower high. This pattern turned bullish with the Double Top Breakout at 25. 

{{:chart_analysis:pnf_charts:pnf_triangles:pnftri-2-qld-bull.png|P&F Triangle - Chart 2}} 

The chart above shows the ProShares Ultra QQQQ Fund (QLD) with a triangle forming after a sharp advance towards the end of 2010. This triangle represented a consolidation within an uptrend. Even though such consolidations are typically continuation patterns, they are still dependent on a breakout before turning bullish. After a lower high and higher low, the ETF forged a Double Top Breakout to confirm a Bullish Triangle. 

===== Triangle Breakdown =====

A Double Bottom Breakdown signals a bearish resolution to the triangle pattern. Note that a trend line break is not enough. A basic P&F sell signal, such as a Double Bottom Breakdown, is required to complete the triangle and trigger the bearish signal.

The chart below shows Atlas Air (AWWW) with a long X-Column and then a triangle. While this pattern might be viewed as a potentially bullish continuation pattern, the triangle depends on a break for confirmation. After two lower highs and a higher low, the triangle broke to the downside with a Double Bottom Breakdown. 

{{:chart_analysis:pnf_charts:pnf_triangles:pnftri-3-awww-bear.png|P&F Triangle - Chart 3}} 

The chart below shows F5 Networks (FFIV) with a long O-Column that forged a Triple Top Breakdown. A consolidation formed after this long column and a triangle evolved. After a higher low and lower high, the stock continued lower with a Double Bottom Breakdown to turn the triangle bearish. 

{{:chart_analysis:pnf_charts:pnf_triangles:pnftri-4-ffiv-bear.png|P&F Triangle - Chart 4}} 

===== Objectives and Risk =====

Chartists can use the [[:chart_analysis:pnf_charts:pnf_horizontal_count|Horizontal Count Method]] or the [[:chart_analysis:pnf_charts:pnf_vertical_count|Vertical Count Method]] to establish Price Objectives. Price Objectives are not hard targets. Instead, they simply provide a guesstimate for an upside or downside objective. 

Chartists should also study the chart to assess risk. After an upside breakout, a move below the low of the last O-Column would produce a Double Bottom Breakdown and invalidate a triangle breakout. Chartists should also employ other technical analysis techniques to measure risk and monitor the unfolding trend. 

===== Conclusion =====

Bullish and Bearish Triangles represent price consolidations that often precede a substantial move. This coiling of prices is similar to the tightening of Bollinger Bands. Volatility declines as the Bands narrow and as a Triangle coils tighter. A volatility contraction is often followed by volatility expansion, which produces the breakout or the breakdown. Short triangles (4 columns) after a sharp advance or decline are more likely to be continuation patterns. Large triangles (6+ columns) are more likely to mark a reversal. Regardless of the bias, a triangle is not confirmed until the Double Bottom Breakdown or Double Top Breakout. 

===== Further Study =====

Thomas Dorsey's //Point & Figure Charting// examines the basic ideas and key patterns of P&F charts. Dorsey keeps his analysis simple and straightforward; as a relative strength disciple, he devotes a complete chapter to relative strength concepts using P&F charts. These concepts are tied in with market indicators and sector rotation tools to provide investors with all they need to construct a portfolio. Additionally, Dorsey incorporates lessons on how to use P&F charts with ETFs.

//The Definitive Guide to Point and Figure//, by Jeremy du Plessis, lives up to its title and is required reading for the Chartered Market Technician exam. Chartists can learn about 1-box P&F patterns/counts, 3-box patterns/counts and various trading strategies. du Plessis also shows how to apply P&F charting techniques to other analysis tools, such as relative strength and Fibonacci retracements, using plenty of real-world examples. 

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