Triangle is a widely recognised chart pattern defined by two converging trend lines. This article will teach you how to spot different types of triangles and which trading strategy to apply for each of them after the breakout.
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The triangle chart pattern is formed by two converging trend lines
drawn along a narrowing price range. There are three types of
triangles: ascending, descending, and symmetrical.
You can easily tell different types of triangles apart by looking at the slope of the trend lines:
To choose an effective trading strategy, you must first define the type of a triangle correctly.
Triangle is not to be confused with the expanding triangle
pattern. Two converging lines form triangles, whereas
an expanding triangle is constrained by two diverging lines
resembling a megaphone. The latter can be difficult to exploit,
especially for novice traders, and require a special approach.
A valid triangle indicates an opposition between buyers and sellers.
It means traders are unsure of which way the market is going to move.
Triangles often appear before the release of important news.
The triangle pattern is considered a continuation pattern. However,a
false triangle signifies a strong trend reversal. That means you
should be very careful when trying to identify and confirm this pattern.
Triangles occur on all timeframes for any asset,including Forex pairs, stocks,
and cryptocurrencies. They can appear in any market context regardless of the
preceding trend direction.
A valid triangle usually includes at least five touches of support and resistance. Look for a consolidation on the chart and then wait for several touches to confirm it.
An ascending triangle forms when a narrowing trading
range repeatedly touches a certain resistance level
and then breaches it. A strong upward trend follows the breakout,
finishing this bullish pattern.
The psychology behind the ascending triangle pattern is that some buyers
patiently wait for the breakout, placing higher bids. Once the pattern gets
confirmed, more buyers rush in, pushing the price up.
A descending triangle is the opposite of the ascending type.
The price repeatedly touches a support level before collapsing through it.
A strong downward trend follows, finishing this bearish pattern.
A symmetrical triangle has two diagonal trend lines
with no clear support or resistance levels. It can break in any
direction, so it can turn out to be a bullish or bearish
pattern depending on the outcome.
The symmetrical triangle is the most frequent type of the triangle pattern.
When neither buyers nor sellers can push the price in their direction,
any sharp movement will start a new strong trend.
To successfully exploit a pattern, you must correctly identify it and then wait
for the breakout. Once it gets clear which way the price is moving next,
enter the market using the appropriate strategy.
While some outcomes are more probable than others, the breakout can occur in both directions, so it is important to confirm any type of the triangle pattern. To be sure, look for a spike in trading volume and skip a couple of candlesticks or wait for a retest to confirm the forming trend.
A valid ascending triangle probably indicates an upward trend, so prepare<> to buy the asset.
A valid descending triangle probably indicates a downward trend, so prepare to sell the asset.
A valid symmetrical triangle can break out in any direction, so be careful.
The triangle pattern usually predicts a strong trend, but it can move in either direction
Look for a consolidation with a narrowing price range within two converging trend lines
Ascending triangles are mostly bullish (Buy), descending triangles are bearish (Sell)
Wait for a retest, a sharp volume increase, or an obvious trend to confirm the pattern
Prepare to set your Stop Loss and Take Profit levels for various breakout scenarios