Triangle Patterns Trading guidelines (PDF)
Triangles are one of the most significant chart patterns frequently appearing in the forex market. On the one hand, traders can use these chart patterns to forecast future price changes. On the other hand, to predict potential resumption signals of the prevailing move as trend continuation patterns. Indeed, trading outcomes can be excellent when using a strong technique based on them. To clarify, two lines are constructed on the trading chart based on the price’s previous movement. Then, converging trendlines create the triangle formation. The distinction is in the way in which those lines converge. In fact, there are three categories of triangle patterns: ascending, descending, and symmetrical. Note that every triangle structure has its unique interpretation. That is why it is so important to comprehend each triangle chart pattern separately.
Triangle pattern guide
What is the triangle pattern ?
Triangle trading pattern is widely used among forex traders. Because it is important to master this technical analysis tool to better anticipate the future price movements in the forex market and protect themselves from huge losses. This consolidation pattern often occurs as a temporary structure in the middle of a trending phase before its continuation.
How do you trade with Triangle Pattern ?
To construct the triangle you need to make sure that you are working with candlestick charts because this pattern can not be spotted by any other form of a chart.
There are important steps to take while considering using these patterns in a strategy :
- Determining if the market is on consolidating or in trend: Once the market is consolidating, these patterns will not work as well and traders could lose a lot of money. Traders should make sure that the market is on-trend.
- Decide what pattern you want to use: whether you’re going to trade an ascending triangle, descending or symmetrical (based on the breakout)
- Setting a Stop-Loss
- Selecting a Take-Profit
Ascending triangle pattern example
The ascending triangle is a bullish continuation pattern that is formed by a rising lower trendline intersecting with a flat upper grade. Indeed, whenever the lower trendline rises while the upper one remains horizontal, an ascending triangle is formed. Generally, ascending triangles are a chart pattern that predicts a breakout to the upside as buyers are more and more accumulating. Traders will enter into a long position if the price break above the upper trendline. However, If the price breaks below the lower one, traders will enter a short position.
From one part, the height of the triangle will reflect the profit target. In other words, The breakout price plus the triangle’s height will be your profit target price. from another part, stop losses should be used in every position you take. If the price changes against you, this will protect you from losing money. In the case of ascending triangle pattern, traders will place stops on the other side of the breakout, which means on the supporting grade.
Before taking any decision in the market, Triangle pattern traders should check for price action confirmation of the breakout. Moreover, Investors can realize huge profits in a short time if they accurately anticipate a breakout. The price movement shows the offer and requirement between buyers and sellers in the market. To explain, buyers drive the price to follow a growing trendline until it breaks the resisting one.
Descending triangle pattern example
The opposite of an ascending triangle is a descending triangle. The descending triangle is a common chart pattern. It helps traders understand that demand for a certain security’s price is dropping in the market. Hence, sellers are accumulating more and more to drive the market downer. This triangle pattern is a bearish sign for traders that signals entering into a short position with the breakout. In fact, on a break below the flat dower grade, chartists would take a short position. Traders might use a sell-stop below the lower line to limit their possible losses. Besides, the price target for this chart pattern is measured by subtracting the vertical height between the two trend lines at the moment of the break from the entry price.
Symmetrical triangle pattern example
The symmetrical triangle represents a chart pattern that arises when supporting and resistant trend_lines converge towards each other. This trend continuation pattern is composed of two higher-ups and two lower-downs forming two sides. To explain, the triangle’s two sides remain both inclined at almost the same angle. Consequently, their extension and convergence give the triangle its symmetrical shape. In fact, the pattern widens at the beginning of the formation and narrows at its ending until a breakout occurs. That is why it is sometimes referred to as a coil. Before taking any investment decisions ( Buy or Sell ), traders should wait until the breakout confirms.
Bullish symmetrical triangle
In a Bullish symmetrical triangle, the price movements cross the resistant level ( The descending upper Trendline ). Thus, a buy signal for traders results from this breakout.
Bearish symmetrical triangle
In a Bearish symmetrical triangle, the price movements cross the supporting line ( The ascending lower Trendline ). Hence, a sell signal for chartists results from this breakout.
Symmetrical triangle trading strategy
Firstly, establishing a stop loss will help you avoid huge losses, if the stock moves in an unexpected direction. The symmetrical triangle pattern’s stop-loss is regularly just near the breakout point. Secondly, to estimate the price target, we have two methods. The first method is to measure the height of the triangle’s base and apply it to the breakout point. The second method is constructing a parallel trendline to the supporting grade, beginning at the triangle’s first point of contact at the upper line. Thus, this parallel line shows the price target.
Limitations of this Pattern
- The fundamental issue with triangle patterns, in general, is the existence of false breakouts for example: Buying in at a false breakout moment, can be costly.
- Compared to other chart patterns and indicators, triangles take quite a long time to develop and become recognizable.
- Several patterns, for example, “Pennants”, share some of the same qualities as the Triangle Pattern, making it difficult for beginner investors to detect the difference between them.
In conclusion, Triangle Patterns are simple to recognize when an investor understands what to seek. To estimate price volatility in the future traders use the triangle pattern. However, they must be careful when using this tool. Moreover, traders need to be patient and confirm the breakout before taking any decision.
- One of the most widely used tools for technical analysis involves the triangle pattern.
- This chart pattern helps traders understand the price movements in the market.
- The triangle pattern assists traders in forecasting future outcomes and taking the right decisions (to enter and exit positions.)
- Traders must be careful while using this tool. Therefore, they need to confirm the breakout before placing any order whether to sell or to buy.
- Setting a stop loss is important, it could protect you from losing a huge amount of money.