How to trade triangle chart pattern

  • How to trade triangle chart pattern

    Triangle pattern trading is a way of analyzing the market which can be categorized as a trend continuation pattern.

    Triangle pattern design is described as a horizontal line. At first, the range is wider, but then the sideways condition affects the market and makes the distance between the two lines narrow.

    The narrowing forms a triangle, where the top line is the supply or resistance area and the lower area is demand or support.

    This triangle pattern reflects that market players lack the interest to either buy or sell, where trading volume is getting smaller.

    There are three groups of triangle patterns which each one should study carefully. The three patterns are the ascending triangle, descending triangle, and the symmetrical triangle.

    Triangle pattern explained

    Triangle chart patterns appear frequently in forex trading. This is a horizontal type of trading pattern. The triangle is in the widest position and then forms triangular points because the market position is sideways and the trading range narrows.

    The triangle chart pattern in forex trading refers more to technical analysis. Technical traders must be very familiar with this one pattern besides the candlesticks pattern.

    A triangle pattern can appear during a bearish trend or a bullish trend, if this occurs there is a possibility for a continuation of the trend.

    As already mentioned, there are three types of triangle patterns which we will study one by one to broaden the horizons of technical analysis.

    The following  triangle chart pattern forex consists of 3 types, namely

    1. Symmetrical triangle pattern

    2. Ascending triangle pattern

    3. Descending triangle pattern

    These chart patterns are often found in practice, and now we will learn how to trading with triangle chart pattern, or you can practice in the forex demo account

    Now I will explain all the three patterns above one by one.

    Symmetrical Triangle Pattern

    The symmetrical triangle is a pattern that is a continuation pattern signal with an accuracy of nine out of ten patterns. This pattern is formed because the market has no direction. The trend is neither up nor down because the market is losing volume.

    The Symmetrical Triangle pattern is formed when there is a slope of high prices and low prices which converge towards one point. This condition occurs because of unclear prices whether to rise or fall so that price consolidation occurs in the market.

    The comparison between supply and demand is balanced so that it forms a symmetrical triangle pattern with the same steepness.

    This pattern reflects the indecision of the market, and the highs and lows converge at the point of the triangle with decreasing volume as investors are unsure about what position to take.

    However, after the breakout, the price will move significantly again with greater volume as market participants have found its direction.

    If a breakout has occurred, usually the price will move to the previous major trend so it is advisable to open positions in the direction of the major trend. Indeed it not always, but it often is.

    Symmetrical triangle patterns occur in markets where the price direction is not clear. Therefore, the top and bottom trend lines appear to be the same, there is no flat.

    From the image above we can describe buyers and sellers who provide market conditions like this, make the highest price towards the lowest price, and the lowest price towards the highest price. This situation is very confusing for investors to decide whether to open a position, open or close a position because there is a possibility of a breakout. 

    Because it is better for investors to wait for the direction of the breakout to go in which direction then decide the next step.

    In this case, the buyer and seller are in a consolidation where the buyer buys at a higher price and the seller is selling at the lower price.

    How to trade Symmetrical triangle pattern

    The triangle pattern will form a narrowing angle, and if the two slope lines almost meet, it often happens that the direction of the price movement will move and occur a breakout of one of the two slope lines.

    In this pattern, we cannot determine the exact breakout direction but surely there will be a breakout so that the best strategy is to be able to take advantage by opening buy positions above the high-level slope line and sell positions below the low slope line, which is pending buy stop and sell stop orders. Wait for a symmetrical triangle breakout.


    By placing pending buy stop and sell stop orders, if there is a breakout either bearish or bullish then a pending order will be hit, and we can cancel another pending order, in the case because occurred of a bullish breakout, so we manually delete the pending order sell stop

    While the target level or take profit in pip is determined by the height of the triangle (x).

    Ascending triangle pattern

    The Ascending Triangle pattern can be considered as a continuous pattern of previous trends that have taken place. The Ascending Triangle forms like a triangle with a horizontal line side above which illustrates an uptrend chart and a bullish price. Sometimes this pattern is also formed at the end of the downtrend and gives a sign of a price reversal.

    This pattern illustrates that an uptrend is occurring with the bottom trend line going on an increase in the support level and it is difficult to break the resistance level. So that the price movement tries to break at the resistance level. When the price has touched the resistance level there is an uptrend.


    In this condition, the seller stays at a certain selling price while the buyer buys at a higher price so that the price is getting closer to the selling price.

    When buyers and sellers have reached a point, the direction of price movement will often break out one of the resistance levels or low-level slope lines.

    In many cases indeed prices can break the resistance level where buying sentiment is indeed stronger than selling sentiment so prices continue to rise and break the seller's maintained level, especially if the situation before the formation of this pattern prices tends to move uptrend.

    In this case, the ascending triangle pattern shows a trend continuation. But not infrequently the resistance level is too strong and buyers cannot break out. This situation can be caused by buying sentiment which decreases or the number of sellers increases so that the price moves through the low slope line and moves bearish.

    How to trade in ascending triangle pattern

    The easiest way when the pattern forms an ascending pattern is to place pending buy stop and sell stop orders outside the triangle line, right where the pattern is narrowing.

    If you are a patient type of trader you can wait for the triangle line to be broken. This pattern is a trend continuation pattern, but a trend reversal may occur. You have to see whether the current price is at the top resistance or bottom support.



    From the image above we can describe If this pattern is formed we also might confuse where the direction of the breakout will go up or down, but surely there will be a breakout so that it can take advantage by opening a buy stop position above the resistance level and sell stop position below the low-level slope line.

    If with the example above there is a breakout in the direction of the low-level slope line and the sell stop order is executed so that we can manually delete the other order, in this case, the buy stop

    For-ascending triangle pattern target level or take profit in pip is determined by the height of the triangle (x).

    Descending triangle pattern

    The descending triangle pattern places the highest price position in a downward position towards the lowest position. Descending Triangle is also the opposite of the ascending triangle, which is a triangle pattern that describes price movements that are hard to break the support level so many times that there is a price downtrend. This pattern is often used as an indicator of a bearish signal (downtrend) in forex trading.


    When the seller's selling price is almost the same as the buyer's price, then the direction of the price movement will immediately breakout or breakthrough one of the support levels or the slope level high line.

    This pattern happens, in many cases prices can break the support level where selling volume is stronger than buying volume, but not infrequently the support level is too strong and buyers cannot break out due to diminishing selling sentiment or an increasing number of buyers so prices move breaks the high-level slope line and move bullish.

    How to trade in Descending triangle pattern

    Then how to determine the strategy if this descending triangle pattern appears and we identify it?

    We already know the trading strategy in the symmetrical pattern and the ascending triangle pattern, on the descending triangle pattern we can also apply the same method. By placing a pending order buy stop and sell stop outside the triangle line to get a breakout.


    Just like the strategy for the symmetrical triangle and ascending triangle pattern, we open long positions above the high-level slope line and sell stop positions below the support level. In this example there is a breakout in the direction of the high-level slope line so that the buy stop order is executed so we cancel the other order, in this case, is a sell stop.

    And to determine the profit target also the same as the triangle pattern before, we determine the take profit level by measuring the height of the triangle (x).

    Example trading triangle pattern strategy

    The first step to take is to find a triangle pattern on your chart, by finding two lower highs and two higher lows. Then draw a triangle pattern higher to higher low and lower to lower high with the trend line. Determine whether it is an asymmetrical or descending triangle or an ascending triangle.

    Next, check whether the previous trend was an uptrend or downtrend. This is important because the trend of the triangle pattern is a continuation of the trend.

    We have drawn a triangle pattern which, on the example above, turns out to be a symmetrical triangle. And also we find before this pattern is formed in an uptrend.

    The next step is to wait for the breakout above the triangle line, as target our position, because this is a trend continuation pattern.

    After the breakout candlestick marked by a bullish candlestick that closes above the triangle line, which exits the pattern, it is time to open Buy.

    The first target is to calculate the high to the low distance where the initial line of the triangle pattern is formed.

    For example, the high to low point distance is 30 pips then the first target is 30 pips, then the second target is 2x30 pips. And the stop loss is placed below the triangle line.

    This is the traditional way when traders can focus on market changes, because if you momentarily neglect to monitor the market, it is possible that when a breakout occurs, traders don't notice it, thus you losing good momentum.

    If you are a busy trader, you can apply for a pending order with a buy stop and sell stop strategy at once to determine to stop loss and profit targets.

    The scenario is that if one of the pending orders becomes active, it will cancel the other pending orders.

    Conclusion

    The three patterns above are the symmetrical triangle, the ascending triangle and the descending triangle sometimes gives fake signals. Because the depiction sometimes makes a price breakout.

    You need to look further if you use these patterns. As you have to wait for the price breakout to go where is it bullish or bearish then you can decide what steps you will take.

    But you can also try the pending order strategy as exemplified above

    Besides that, you also need to monitor the trading volume whether it's on the symmetrical triangle pattern, the ascending triangle, or the descending triangle.

    Monitoring this trading volume is done when a breakout to see what is happening with the market and then you can decide on the next step.

    There is another way of reading the ascending triangle and descending triangle position, which is by looking at the candle chart.

    You have to wait for a full candle chart above the pattern when the pattern is an ascending triangle, and the candle chart is fully closed below the pattern when the pattern is a descending triangle.