Triangle Chart Patterns
Chart patterns are one of the ways to trade the financial markets. They are commonly occurring and include different patterns that are formed on the chart. When taken in context with the larger picture, chart patterns tend to offer potential direction of the prices in the near term. Of the many different chart patterns, triangles are one of the more commonly occurring chart patterns. While triangle chart patterns are easy to trade, they require a bit of practice in order to be able to trade them with confidence. Therefore, the chart patterns are not suited for beginners as it required evaluating the trend in the markets and taking a position accordingly.
Triangle Chart Patterns – Why and when do they occur?
The triangle chart patterns occur usually occur right after a strong move in the markets. This could mean a few strong bullish or bearish price bars. What follows the strong momentum moves is a period of consolidation. These periods of consolidation usually evolve into a triangle pattern. The two main types of triangle chart patterns we talk about are the ascending and the descending triangles. When prices breakout from the consolidation they signal further move in price, depending on whether it is an ascending or a descending triangle that is formed.
Identifying triangle chart patterns
Ascending Triangle: An ascending triangle is typically formed by an horizontal level of resistance which has been tested at least twice. While in the process, prices start to make higher lows. By connecting the higher lows using a line tool, the ascending triangle can be traded when prices break out of the horizontal resistance level. An ascending triangle is usually bullish and long positions are taken on breakout from the resistance.
Once prices clear the horizontal resistance level, the target is measured as the distance from the lowest low to the horizontal resistance level and then projected up.
Descending Triangle: A descending triangle is formed when prices are held by a horizontal support level. However, every time prices bounce off the horizontal support level, they form lower highs. When prices eventually break the support, it is expected that the prices start to decline. For the target, the distance from the highest high to the support is measured and then projected lower. The descending triangle is bearish and short positions are taken after support is broken.
The following chart illustrates an ascending and a descending chart pattern.
Triangle Chart Pattern – Examples
The first chart below shows an example of an ascending triangle. Notice how the resistance was identified and prices reacted by forming higher lows. Once resistance was cleared, price eventually rallied to the measured target objective.
The next chart below gives an example of a descending triangle pattern.
In the above chart, prices consolidated, bouncing off the support level and in the process formed a descending triangle pattern. When the support level eventually gave way, prices rallied to the measured distance from the high and the support level projected lower.
Trading Triangles – What you should know
Not all triangle patterns work out as planned and therefore traders should be aware of fakeouts where prices break the support or resistance level only to fall back below and move in the opposite direction. It is therefore essential that traders need to only trade a good risk/reward set up in order to trade effectively using the triangle chart patterns. There is no ideal timeframe as triangle chart patterns occur on almost any timeframe of your choice. However, anything less than 30 minute time frame can be risky. Overall, the triangle chart patterns are simple to master and with enough chart time, traders will be able to trade the triangle chart patterns effectively.
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