Introduction to triangle patterns
Predicting prices ahead of time helps traders make more informed decisions on whether they should buy or sell an asset. Charts often start to form shapes such as triangles or head and shoulder patterns. Triangle patterns are particularly popular, as they have historically been successful in using past data to accurately predict future price movements.
Triangles are like a coiled spring ready to release its energy in one direction or another, making them a valuable pattern to watch for in forex trading
The triangle pattern is also referred to as a continuation pattern. Continuation patterns indicate that the sideways price action on the chart indicates a momentary pause in the current trend, and that the next move will be in the same direction as the trend that preceded the formation. This means if you can keep your trade open with sufficient funding over a longer period of time, a periodic drop in prices might rebound to rising prices again.
Triangle patterns will have their widest point at the beginning of their formation, and then the trading range will narrow to form a triangle point when the market starts to trade sideways. Triangle patterns need at least two upside points and two downside points to be formed.
It is important to know if a market is following a continuation pattern (like triangles) or a reversal pattern. Another factor you can look for to distinguish these patterns is duration.
Reversal patterns usually take longer to build and represent major trend changes. Continuation patterns are usually shorter in duration and are more accurately classified as near-term or intermediate patterns, due to their momentary nature.
However, we intentionally use the word “usually” because there will always be exceptions that break these rules due to the volatile nature of markets. Even the grouping of price patterns into different categories can sometimes become tenuous, as although triangles are usually continuation patterns – they can sometimes form reversal patterns as well. It always pays to keep a close eye on market movements that may impact open trades and to maintain a healthy risk appetite for your investments.
Ascending, descending and asymmetrical triangle patterns
There are three basic types of triangle patterns that can be formed on the chart based on the price movements of an asset:
- Ascending triangle: The ascending triangle pattern will appear in an uptrend. The lower line of the triangle is drawn by an upward trend line on the bottoms, while the upper line of the triangle is on equal peaks. The ascending triangle indicates an increase in the number of buyers, which may push the price up.
- Descending triangle: The descending triangle pattern appears in a downtrend. The upper line of the pattern is drawn to form a descending trend line, while the lower border of the triangle is on equal bottoms. The descending triangle suggests an increase in the number of sellers and that may lead to the price declining.
- Symmetrical triangle: The symmetrical triangle pattern indicates a state of indecision in the market and the lack of control by buyers or sellers over the price. The breakout of the triangle pattern is often associated with the previous price trend.
How to use triangle patterns
As the triangle patterns are used to predict price movements, they can be helpful tools for traders to decide whether to enter or exit the market. Usually, traders will buy or sell the asset when the price of it breaks above or below the triangle pattern.
When the price breaks out of the triangle pattern, the distance between the widest points in the triangle can be measured to determine the future target for the price.
A stop loss order can also be placed below or above the triangle pattern to encourage risk management, because the price return to the triangle zone would indicate a failure of the predicted continuation pattern.
Author, Ahmed Azzam, Regional Financial Market Analyst, Equti.com
Ahmed is an accomplished and highly respected professional in the financial industry, with a proven track record as a successful trader, trainer, and market analyst. Leveraging his extensive knowledge and expertise in both fundamental and technical analysis, Ahmed has accumulated over 14 years of experience conducting in-depth research and analysis within the financial markets.
As a chartist and fundamentalist, Ahmed has held critical market analyst positions in some of the most reputable firms, including Capital Investments, Noor Al-mal, Falcon Brokers, Fx River, and Borsaat. His exceptional analytical skills and market insights have enabled him to consistently provide valuable recommendations and insights to clients.
Throughout his distinguished career, Ahmed has made significant contributions to the success of numerous educational and analytical initiatives. His ability to provide actionable insights and strategic advice has resulted in his recognition as a thought leader in the industry. Ahmed's unwavering commitment to excellence and his dedication to driving value for clients make him an invaluable asset to any organization.
FAQs
The lower line of the triangle is drawn by an upward trend line on the bottoms, while the upper line of the triangle is on equal peaks. The ascending triangle indicates an increase in the number of buyers, which may push the price up. Descending triangle: The descending triangle pattern appears in a downtrend.
What is the most powerful pattern in forex? ›
Head and shoulders
The head-and-shoulders pattern is formed of three highs: The central high is the greatest, forming the head of the pattern. It's flanked by two lower points, which make up the shoulders.
How do you trade expanding triangle patterns? ›
In this case, we would place entry orders above the upper line (the lower highs) and below the support line. In this case, the price ended up breaking above the top of the triangle pattern. After the upside breakout, it proceeded to surge higher, by around the same vertical distance as the height of the triangle.
What is the success rate of the ascending triangle pattern? ›
We are detecting more assets trading in Ascending Triangle patterns. According to historical backtests, Ascending Triangle patterns have 68% success rates. That means that 2/3 of the time, it generates a profit.
What is the rule of 3 in forex trading? ›
Rule of three is an unwritten rule that recommends that a trader should use three timeframes before they initiate a trade. Proponents believe that looking at three timeframes will help a trader identify all the necessary points they need to execute a trade.
What is the golden triangle in forex trading? ›
Description. The Golden Triangle (Long Entry) strategy is a moving average based technical indicator developed by Charlotte Hudging in attempt to identify promising entries on stock charts.
Is there a 100% winning strategy in Forex? ›
Trading forex is risky and complicated, and no strategy can guarantee consistent profits. Successful forex traders are those who tend to have a good understanding of the market, good risk management skills, and the ability to adapt to changing market conditions.
What is 90% rule in Forex? ›
This rule states that 90% of inexperienced traders will suffer significant losses within the first 90 days of trading, resulting in a staggering 90% loss of their initial investment. While this may seem like an alarming statistic, it serves as a harsh reminder of the high risk and volatility involved in trading.
What is the hardest Forex pair to trade? ›
The 10 most volatile forex pairs (USD)
- The 10 most volatile forex pairs (USD) USD/ZAR - Volatility: 12.9% ...
- AUD/USD - Volatility: 9.6% ...
- NZD/USD - Volatility: 9.5% ...
- USD/MXN - Volatility: 9.2% ...
- GBP/USD - Volatility: 7.7% ...
- USD/JPY - Volatility: 7.6% ...
- USD/CHF - Volatility: 6.7% ...
- EUR/USD - Volatility: 6.6%
An ascending triangle is a breakout pattern that forms when the price breaches the upper horizontal trendline with rising volume. It is a bullish formation. The upper trendline must be horizontal, indicating nearly identical highs, which form a resistance level.
This pattern is formed in a position prior to the final wave in an impulse or a correction. For example, a triangle could be formed in a wave four in an impulse or wave B in a zigzag.
How to trade ascending triangle pattern? ›
How do I trade an ascending triangle pattern? Wait for a breakout above the horizontal resistance line and consider a long position once it has been breached. The stop loss is generally placed below the ascending trendline, while the take profit target is set based on the pattern's height.
How reliable are triangle patterns? ›
Ascending triangle patterns are generally reliable indicators of a bullish trend, especially when formed in an ongoing uptrend and confirmed with high trading volume.
What is the downside of the ascending triangle breakout? ›
Here an ascending triangle forms during a downtrend, and the price continues lower following the breakout. Once the breakout occurred, the profit target was attained. The short entry or sell signal occurred when the price broke below the lower trendline. A stop loss could be placed just above the upper trendline.
Is descending triangle always bearish? ›
A regular descending triangle pattern is commonly considered a bearish chart pattern or a continuation pattern with a downtrend. But sometimes Descending Triangle can be bullish without a breakout in the opposite direction known as reversal pattern. A descending triangle signals traders to take short position.
How to trade a triangle? ›
If you spot a triangle pattern on your chart, the general advice is to wait until the price breaks out and forms a new trend. When it happens, you can enter a trade at the breakout point and move in the direction in which the price is moving.
What is the triangle strategy for trading? ›
Traders use triangles to highlight when the narrowing of a stock or security's trading range after a downtrend or uptrend occurs. There are three potential triangle variations that can develop as price action carves out a holding pattern, namely ascending, descending, and symmetrical triangles.
How do you trade Fibonacci in forex? ›
Traders plot the key Fibonacci retracement levels of 38.2%, 50%, and 61.8% by drawing horizontal lines across a chart at those price levels to identify areas where the market may retrace to before resuming the overall trend formed by the initial large price move.
What is the triangular trade pattern? ›
Triangular trade or triangle trade is trade between three ports or regions. Triangular trade usually evolves when a region has export commodities that are not required in the region from which its major imports come. It has been used to offset trade imbalances between different regions.
