These stocks are moving in triangle patterns—where the price of the stock is confined to a smaller and smaller area over time—and will likely see a breakout early in 2017. Triangles are one of the more popular chart patterns among traders. The patterns are relatively easy to spot, the reward potential of the trade outweighs the risk, and they can be traded in a variety of ways. Here are three to watch in 2017, along with some potential ways to trade them.

Danaher Corporation (DHR) rallied in 2016 but stalled out in July. Through July and August, the stock moved sideways, putting in a high at $82.64. Since then, the price is moving in a descending triangle pattern above support at $75.71. The height of the pattern, $6.93 ($82.64 - $75.71), provides an approximation of how far the price could run once a breakout occurs. If the price breaks the triangle to the upside, moving above $80.50, then add $6.93 to get an approximate target of $87.43. If the price breaks below $75.71, subtract $6.93 to get an approximate downside target of $68.78.

Stop loss orders can be placed at the opposite breakout point. For example, if the price moves above $80.50, triggering a long trade, then a stop loss is placed just below $75.71. An alternative is to buy near $76 if the trader believes the price will breakout higher, or short near $80 if a downside breakout is expected. Using the same stop loss levels, the risk/reward of the trade is greatly increased. Yet, with this method, the trader is predicting the breakout direction without confirmation of a price move/breakout in that direction.

Fidelity National Information Services, Inc. (FIS) rallied to a September high of $81.67, experienced a pullback and has been moving sideways since October. There are a number of ways a triangle can be drawn.

One interpretation is to view the triangle as symmetric, connecting the lows and highs since October and November, respectively. A downside breakout occurs at $74.50, and an upside breakout at $77.15. The height of the symmetric triangle is $5.98 ($79.23 - $73.25). If an upside breakout develops, the target is $83.13, while the target for a downside breakout is $68.52.

The $79 region can also be viewed as resistance, forming an ascending triangle with the rising swing lows since late October. The price needs to move above $79.23 to break this pattern. If that occurs, the upside target is $85.21. The downside breakout point and target are the same as the prior pattern. An alternative trade is to buy near support in anticipation of an upside breakout (in alignment with the longer-term trend) or to sell near resistance in anticipation of a downside breakout. A stop loss is placed just above resistance (top of the triangle) for short trades, or just below support (bottom of the triangle) for long trades.

Liberty Global plc (LBTYK) is in a downtrend but has leveled off since mid-2016. In all the sideways movement since July, there are a number of ways a triangle could be drawn. One interpretation is to view the price action since late September as a symmetric triangle, based on the September swing high of $$33.58 and the November swing low of $27.82. The swing highs and lows provide a triangle height of $5.76. An upside breakout occurs at $32, with a price target of $37.76. A downside breakout occurs at $28.80, with a price target of $23.04. An alternative trade is to short near triangle resistance in anticipation of further downside (in alignment with the longer-term trend), or to buy near triangle support in anticipation of an upside breakout (against trend).

The Bottom Line

Watch for breakouts from these triangle patterns in 2017. Traditionally, triangles are traded by entering when the price breaks out of the pattern and placing a stop loss on the opposite side of the pattern. Targets are attained by adding or subtracting the height of the pattern from the breakout point. An alternative strategy is to forecast the breakout direction—based on the longer-term trend, for example—buying near support or shorting near resistance. This provides a better risk/reward but less confirmation from the price (no breakout yet). Only risk a small percentage of account capital on any single trade.

Disclosure: The author doesn't have positions in the stocks mentioned.