[Trends and Patterns] Frequently Observed Chart Patterns - Converging Triangle (or Flag, Pennant) Pattern

There are some basic chart patterns that appear surprisingly often. These are triangle patterns.

Common basic patterns include converging triangles (Symmetrical Triangle, also called flag or pennant patterns), ascending, or descending triangles (Ascending or Descending Triangle).

There are also variations of these, such as ascending or descending wedge patterns. These, too, are surprisingly common patterns.

Wedge patterns are often seen in short-term trends within a few months, while the triangle patterns mentioned above require more time and internal waves. Therefore, triangle patterns are more often seen in longer-term charts spanning several months or even years, compared to wedge patterns.

Another factor influencing the interpretation of these patterns is whether the chart's vertical axis is linear or logarithmic. I believe a logarithmic chart should be the standard, but linear charts can also sometimes offer clues about trends.

In particular, when examining long-term charts spanning several years to identify trends or patterns, the interpretation can vary slightly depending on whether the trendline is based on monthly highs/lows or on a line chart of monthly closing prices.

For example, below is a chart of the 10-year US Treasury yield over the past few decades. Since the yield is measured in percentages, it's somewhat ambiguous whether to use a linear or logarithmic chart, but I think the logarithmic chart is more important in this case.

The two charts below show the long-term chart of the 10-year US Treasury yield with a linear vertical axis. Even though both are linear, there is a slight difference in feel depending on whether the trendline is based on monthly highs or monthly closing prices.

The chart below shows the same data using a logarithmic vertical axis. These also feel somewhat different from the above. In a logarithmic chart, especially for long-term charts of more than a decade, the lower right chart, based on monthly closing prices, seems to show things more clearly.

Since around 2021, after the Corona crisis, it feels like the long-term trend of interest rates has changed. Naturally, it is possible to infer that this is related to the long-term direction of inflation.

Regarding converging triangle patterns, the following images are frequently used as examples of typical waveform patterns. The general rule is that once a convergence breaks out in one direction, that trend continues for a considerable period. While not explicitly shown in these images, they also include what I suspect to be the Great Depression pattern.

I believe the USD/JPY exchange rate, as shown below, is an example of a long-term converging triangle pattern. It looks almost like a classic triangle pattern.

As with the 10-year US Treasury yield example above, when viewing these four charts, each chart has a slightly different feel. However, the most significant characteristic shown in this long-term USD/JPY exchange rate chart is the difference in the pattern flow based on the trendline of the monthly candlestick highs/lows and the trendline created from the line chart of monthly closing prices.

In the candlestick charts on the left, it appears to have broken upwards, while in the line charts on the right, it still appears to be within the triangle pattern, not yet having established a direction.

Should we consider it already broken out, or is it still in a convergence range without having established a direction?

Of course, judging from the current trend, the stronger dollar is likely to continue pushing the USD/JPY line charts upwards. It can be considered that one has broken through, while the other is still in the "intermediate" state of not having broken through.

The nature of this pattern is that just before and after a breakout in one direction, there is often a period of significant sideways movement. Since this is a long-term chart spanning several decades, this period of sideways movement may feel like a long period of several years.

However, if it follows the typical pattern, there could be a sudden, short-term surge at some point. This period of sideways movement in the USD/JPY exchange rate could be the "lag" period often discussed. The point to consider here is the need to be cautious of a potential short-term(?) period of several years before a sudden surge occurs. And it's not just the USD/JPY exchange rate that exhibits this type of similar long-term trend.