In the following example, we will take a look at an example trade on the USDCHF hourly chart to elaborate the how to trade a descending triangle pattern. However, soon after the formation of a large bearish bar, the downtrend found strong support near the 0.
After several tries, the price started ranging. However, it ranged between a descending trend line blue and horizontal support levels orange. Nonetheless, the price action continued to show a bearish pressure in the market as demonstrated by the formation of the descending trend line blue line. After several hours of range-bound price action, the USDCHF bears finally pushed the price below the horizontal support level.
But, prior to that, it had a false breakout where price penetrated below the support but failed to close below it. This is why we discussed by professional traders do not simply place Stop orders to enter the market, but wait for the bar to close while trading breakouts. Nonetheless, the next bear had a clear break on the hourly chart. At this point, you should have entered the market with a sell order.
Here, the Stop Loss should be just above the descending trend line of the bar that broke the triangle. Once the trade is open, the initial profit target was set to be equal to the size of the descending triangle pattern. Unlike an ascending or the descending triangle pattern, a symmetrical triangle pattern has no horizontal support or resistance lines. Instead, a symmetrical triangle pattern is made out of an ascending and a descending trend line that intersects each other at some point.
There is no established directional bias when trading a symmetrical triangle pattern as a break above the downtrend line could signal the start of a bullish trend. By contrast, a break below the uptrend line could signal a bearish trend. However, the profit target, regardless of which way the trend has broken, will always be equal to the size of the triangle in question — just like the other two triangle pattern.
In figure 5, we can see the formation of a symmetrical triangle pattern, as evident by the intersection between the uptrend line and the downtrend line both are blue. While there was a false breakout on the upside, eventually the bar turned back and closed below the ascending uptrend line, generating a signal that a new bearish trend will likely take place. At this point, you would have entered the market with a sell order. Similar to trading the ascending and descending triangle patterns, the initial profit target of the trade would be equal to the size of the symmetrical triangle patterns.
Here, the Stop Loss should be just above the ascending trend line opposite side of the bar that broke the triangle. Furthermore, as soon as it reached the profit target, the downtrend literally ended, and the market started ranging.
While a clear breakout of the triangles is the established way to trade these patterns, some aggressive traders try to maximize their reward to risk ratio of the trade by preemptively entering the market at the opposite end of the triangles. For example, if your trading system is signaling that a triangle will break below, you can try to enter the market near the upper trend line, hoping that a break will yield higher profits and vice versa.
However, unless you have ample experience trading triangles, try to refrain from applying such an aggressive strategy. While you can trade various triangle patterns discussed in this article as a standalone system, it works best in combination with other technical strategies. In fact, integrating triangle patterns is a great way to improve the accuracy of any trading system.
If you are new to trading, you can also use built-in tools found in a lot of charting software that can easily help you identify triangles. However, as the proverb goes, practice makes perfect and the more you try to trade on your own, the better you will eventually become at identifying and trading these patterns.
Figure 2: Triangle Patterns Form During Consolidations and Retracements Most triangle patterns form during this time of minor consolidation when assets are changing hands from traders who were initially bullish to a new set of traders who believes that the trend will likely continue. Why You Should Integrate Triangle Patterns in Your Forex Trading Strategy There are many advantages of using triangle patterns because these will not only signal that if a trend is about to continue or reverse, if you know how to interpret different types of triangles, it can reveal how far the trend continuation or reversal will reach, which can help you calculate your reward to risk ratio for the trade.
Familiarize Yourself with Various Triangle Patterns While Forex traders have identified numerous triangle patterns, regardless of their origin and shape or size, most triangle patterns can be grouped into three broader categories: Ascending Triangle Pattern An ascending triangle pattern consists of a horizontal line on the top of the price action and an ascending trend line.
Descending Triangle Pattern As you can guess by now, a descending triangle pattern is just like the opposite of an ascending triangle pattern. Symmetrical Triangle Pattern Unlike an ascending or the descending triangle pattern, a symmetrical triangle pattern has no horizontal support or resistance lines. Figure 5: Trading Symmetrical Triangle Pattern on the AUDCAD Hourly Chart In figure 5, we can see the formation of a symmetrical triangle pattern, as evident by the intersection between the uptrend line and the downtrend line both are blue.
Trading Triangles with Preemptive Market Entry While a clear breakout of the triangles is the established way to trade these patterns, some aggressive traders try to maximize their reward to risk ratio of the trade by preemptively entering the market at the opposite end of the triangles.
The Bottom Line While you can trade various triangle patterns discussed in this article as a standalone system, it works best in combination with other technical strategies. Following up with my last swing trading article, today I want to go a bit into detail about a particular. This is a very controversial topic and one that, if understood correctly, can make the difference between a losing and.
Trendlines are a very popular trading concept and many traders use them in their daily trading. However, there are quite. Traders doubt their trading methods, the way they manage trades and their own abilities as traders. They are uncertain about. In this manner, the tops of this triangle are on the same level and the bottoms are increasing. This type of triangle typically has a bullish character.
When you spot this triangle on the chart, you should be prepared to catch a bullish price move equal to at least the size of the triangle. In this manner breakouts through the upper level the flat side are used for setting entry points for long positions. This is a sketch of the ascending triangle chart pattern:. The black lines above indicate the price action within the triangle formation. The blue lines refer to the sides of the triangle, which contains the price action.
The red lines correspond to the size of the triangle and its potential target, which is typically a measured move. When an ascending triangle is formed during a bullish trend, we expect a continuation of the trend. As noted earlier, the ascending and descending triangles are a mirror image of each other.
As such, the descending triangle pattern has the opposite characteristic. The flat side of the descending triangle is below the price action. The upper side of the triangle is inclined downwards. In a bearish market, the descending triangle has a bearish potential equal to at least the size of the pattern.
For this reason, the descending triangle is used to open short positions after the price has broken its lower flat side. When the descending triangle is created during a bearish price tendency, we expect the trend to continue. It is very important to mention that the ascending and the descending triangles sometimes break through the inclined level, causing false signals and trapping some traders along the way. The same holds true for the horizontal price zone.
You should always try to wait for the close of the candle to confirm the breakout. This will help reduce many of the false signals. The rising and falling wedges are similar to the ascending and the descending triangle patterns. However, the rising and the falling wedges have no flat side.
Both sides of the wedges are sloping in the same direction. This is a triangle chart pattern, where both sides are inclined upwards. The price creates higher tops and even higher bottoms. This causes the two ascending lines to interact, creating a type of triangle pattern on the chart.
The rising wedge has a strong bearish character. In this manner, the trigger side of the wedge pattern is the lower line. When you spot a breakout through the lower level of a rising wedge, you should expect a sharp price drop equal to at least the size of the pattern. Therefore, breakouts through the lower level of a wedge are used for opening short positions. This is what the rising wedge formation looks like:. With the falling wedge pattern, both sides are inclined downwards. The price creates lower bottoms and even lower tops.
In this manner, the two sides of the triangle are descending and contract to a tight point. Opposite to the rising wedge, the falling wedge has a strong bullish character. Therefore, the trigger side of the falling wedge formation is the upper line. When the price breaks the upper level of a falling wedge, you should aim at for a bullish move at least as large as your wedge formation.
As such, traders use the falling wedge to set long entry points on the chart. Below you will see a sketch of a falling wedge:. Now that you know what the rising and the falling wedges look like, we should share one more detail regarding these formations. Wedges could have trend continuation, or trend reversal character. When the wedge appears after an extended price move, we expect a reversal of the trend, when the wedge appears earlier in the trend, we expect it to be a temporary retracement that will continue the main trend in place.
Typically the more powerful wedge formation is the potential trend reversal formation which occurs after a prolonged trend move. The symmetrical triangle is a situation on the chart where the tops of the price action are lower and the bottoms are higher. Also, the two sides of the triangle are inclined with the same angle. This creates the symmetrical character of the triangle. Typically with a symmetrical triangle pattern, the expected directional breakout is unknown.
The reason for this is that the bullish and the bearish move have equal strength as seen thru the price action. When a breakout eventually occurs, it is likely to provoke a price move equal to the size of the pattern. Therefore, you should carefully identify a potential breakout in the upper and the lower level of the symmetrical triangle in order to take the right position in the market.
The sketch below illustrates the symmetrical triangle formation and possible breakout scenarios :. As you see from the example above, the potential target is based on the size of the triangle formation. With this type of measured move analysis, you will know what to expect from the symmetrical triangle breakout, whether it breaks upwards, or downwards.
Pennants on the chart have a similar shape to that of symmetrical triangles. They typically appear during trends and have a trend continuation character. The bullish pennant is similar to a symmetrical triangle in appearance, but the Bullish pennant formation comes after a price increase. Since pennants have trend continuation character, the bullish pennant is likely to continue the bullish trend on the chart. When the upper side of the pennant gets broken upwards, we are likely to see an increase equal to at least the size of the pennant, and typically larger.
And so when trading pennants, a second target should also be used to catch a larger move. When calculating the second target, you would analyze the price leg immediately following the pennant. You could set the target to of the previous leg or.
When the trend seems strong and has a steep slope a measured move would be an appropriate second target, and in all other cases the.
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