Who this entry is for — Charting's most numerous family — triangles, flags, wedges — traced back to a single mechanism: the model's magnitude fluctuation. With a rare dividend: the ability to predict when the pattern will not keep its promise.
Source: J. M. Hurst, The Profit Magic of Stock Transaction Timing, Prentice-Hall, 1970 — Chapter 3, The Significance of Triangles and How to Tell in Advance if a Chart Pattern Will "Fail" (pp. 57–61, Figs. III-8/III-9).
Prerequisites
Head and shoulders and the Double top — here the missing ingredient enters: magnitude-duration fluctuation.
The mechanism
In plain words — A short wave losing magnitude while the sum of the longer cycles pauses: the bounds converge and the chart draws a triangle. Different names — coil, flag, pennant, box, diamond, wedge — same engine.
To the recipe of the previous patterns Hurst adds two ingredients: a third, shorter component (hence of smaller magnitude, by proportionality) and — for the first time in the simulations — the magnitude-duration fluctuation the model expects. The result (Fig. III-8) is the pattern "which abounds on all charts":
The differences between the various names depend only on the state of the short component's magnitude fluctuation at the moment the sum of the longer components is pausing. And there is a second way to form: some triangles arise by the same mechanics as head and shoulders and double tops (a long cycle rolling over). Telling the two causes apart, Hurst warns, is essential — because they say different things about what follows.
Warning — A triangle is above all a notice: a component is changing magnitude, or a long cycle is turning. The direction of the exit is not in the drawing: it is in the state of the cycles.
Telling in advance whether the pattern will "fail"
In plain words — The chartist's rule ("the triangle continues the preceding trend") is only probabilistic. The model does better: it lists the state of every active cycle and computes which way price will exit — even when the rule is wrong.
It is the chapter's showpiece, played on the real case of Perkin-Elmer, March–September 1961: two triangles flagged by a popular charting book, and for each the table of the measured cycles' state. In the first — a flag made of three cycles of the 1.15-week periodicity — all four active cycles pointed down: the exit was downside, against the charting rule (the preceding trend was up). The book the case was taken from classed it a "failure of charting expectations"; the model had predicted it.
Hurst's synthesis: the chartist's patterns and the model work hand in hand — the pattern calls attention to specific cyclic activity; the chartist's expectations are then verified or repudiated by the state of the cycles.
Summary card
| Costume | Mechanism |
|---|---|
| Triangle / coil / flag / pennant / box / diamond / wedge | Short wave's magnitude fluctuating + longer cycles pausing |
| "Rollover" triangle | Same mechanics as head and shoulders / double top |
| Exit direction | State (up/down/how far along) of every active cycle |
| Pattern "failure" | Predictable from the model, not from the probabilistic rule |
Links
- Case Perkin-Elmer (1961) — the two state tables, numbers in hand
- Head and shoulders · Double top
- Chart pattern verification — Chapter 3's framework
- Hurst tradition — chapter index