In the study of technical analysis, triangles trading patterns fall under the category of continuation patterns. Recognizing chart price patterns is an important aspect of technical analysis that Forex traders should master. These patterns act like a signal on the chart showing a potential trade, and triangle trading patterns can help forex traders quickly identify which direction a pair is going. The triangle trading pattern is one of the most popular price patterns in Forex because it is easy to recognize and they are among the most commonly used tools in FXLORDS’ services; managed Forex accounts and Forex trading signals.
Triangle trading pattern has a good risk to reward setup, and provides clear and concrete price objectives. At the start of its formation, the triangle is at its widest point. As the market continues to trade sideways, the range of trading narrows until the end point of the triangle is formed which is a point called the apex. Think of the lower line of the triangle, or lower trendline, as the support line and the higher trendline as the resistance line. At the support level, the buyers of the pair outpace the sellers, and the pair’s price begins to rise. At the resistance level, the sellers outpace the buyers and the price begins to drop. In its simplest form, the triangle shows losing interest in a pair, both from the buy side as well as the sell side where both lines are to meet the demand.
Symmetrical, ascending, and descending are the three types of triangle trading patterns which we will explore in this article as well as a strategy on how to trade them.
The first type of these patterns is the symmetrical triangle trading pattern. The price movement between the support and resistance trendlines is called a consolidation. Sellers are unable to push prices lower and buyers can’t push price to new highs. Once a triangle is identified on the chart, traders will wait for a breakout either above the support trendline or below the resistance trendline. Usually, within the first 2/3 of the triangle, a breakout occurs either above or below the trendline as either the sellers or buyers take control. A breakout is confirmed with a closed candle above resistance or below support.
The next type of triangle trading pattern is the ascending triangle. Often a bullish chart pattern, the ascending triangle trading pattern usually occur in an uptrend. It is easily recognized by a rising trend line intersecting with a flat resistance line. Upon completion, the ascending triangle will be characterized by a break out above the resistance trendline. A breakout and close above the area of resistance would be a confirmation of this pattern signaling traders to enter long with a stop below the bottom of the pattern
It should be noted that a recognized uptrend should be in place and the lower trendline is drawn to touch the base of the rising lows for the triangle to be considered a continuation pattern. However, in the ascending triangle pattern, breakouts can take place below the support. This can especially be the case when the trend prior to the triangle was down. Finally, the chartist will look for an increase in the trading volume as the key indication that a new high will form.
The last triangle trading pattern is the descending triangle trading pattern. The descending triangle is characterized by an area of strong support intersecting with a downward sloping trendline. The descending triangle is recognized primarily in downtrends and is often thought of as a bearish signal. The triangle pattern represents the forces of buyers unable to push price higher and sellers struggling to push price lower. Usually, the struggle is resolved with a breakout below the support trendline.
When the descending triangle trading pattern occurs as part of a larger downtrend, it usually represents a continuation of the downtrend. A breakout and close below the area of support would be a confirmation of this pattern signaling traders to enter short with a stop above the top of the pattern. As with the ascending triangle, volume again plays an important role in the breakout to the downside.