In the world of forex trading the triangle pattern stands out as a chart formation that almost everyone knows. This pattern is a signal that the market is taking a breather forming a shape that looks like a triangle as prices moves between two converging levels of support and resistance.
This specific pattern is highly prized by traders as it acts as a strong indication to many that the market will hit a “pause” button before moving onwards in the same route as the leading trend. Having a “time-out” before marching in the same direction the market was headed in signals a breather, a pause or a rest for traders moving in the same path before resuming their journey; such a pattern is what traders look for as it provides key information about possible future movements.
A triangle pattern is a shape that has three sides and three angles, along with it looks similar to a triangle.
Have you ever wondered how a triangle pattern is formed? It’s a very interesting shape with three sides and three angles that all fit together just like a regular triangle that you might draw.
When the price of an asset starts to bounce between smaller highs and larger lows it creates a triangle on the chart either a variation of the two. This squeezing action is a sign that those who want to buy and those who want to sell are unsure yet as the triangle narrows a big move is likely just around the corner.
Three dominant triangle shapes are seen in forex markets. When looking at an ascending triangle one must note a horizontal top line often referred to as resistance as well as an inclining bottom line showcasing a trend of higher lows. Generally when you see a descending triangle you can expect a bearish trend. This pattern plays out with a flat bottom line acting as a support and the upper line slanting downwards showing a series of lower highs. The symmetrical triangle takes on a more balanced approach forming a neutral pattern where both lines slope towards each other. Here breakout can happen in any direction with the same probability.
If you’re trying to spot a triangle pattern look for three lines on a graph that connect at different angles forming a shape like a pyramid.
To spot a triangle you’ll need to sketch out a pair of trendlines. One should be drawn to connect the highest points (swings highs) while the other connects the lowest points (swing lows). Both of these lines are going to come together and start squeezing in creating the triangle shape. Once you have this triangle formed the prices will start bouncing back and forth moving between these two lines right up until there’s a breakout. As the market consolidates it’s common to see a decrease in volume indicating traders are taking a step back. During consolidation traders generally step away lowering the overall volume illustrating the market in a stage of consolidation.
Exploring different methods and strategies trading a triangle pattern
When it comes to trading triangles, most folks prefer looking out for breakouts to make their moves in the market. They patiently watch for the moment when the price confidently breaks past the barrier of resistance or support; typically they make a move only when they see a candle completely outside the pattern. Your run-of-the-mill target price is the broadest area in the triangle that’s extended out from where the breakout occurs. The main part of the triangle that is the target price is projected from its widest part.
More seasoned traders often take a different route opting to trade in the back and forth swings found within the pattern. If they buy close to the bottom edge and sell near the top edge they can make money. But this method calls for fast acting and having a strict strategy for setting stop-loss points.
Looking at signs and signals
When looking for triangles sticking to the price movement will give you the most solid results. Adding indicators into the mix can make the setup even stronger. Keep an eye out for volume indicators as they can be particularly useful; typically volume decreases as the price range tightens and shoots up once the triangle is broken. In addition to helping traders confirm the direction after a breakout occurring moving averages such as the 20 EMA, traders can also get a better understanding of momentum confirmation by utilizing tools like RSI or MACD.
When looking at charts the forex triangle pattern stands out as a useful way to notice periods of trading range before a sudden increase or decrease in price can occur. Whether its an Ascending or Descending triangle or a symmetrical one they all give us a glimpse into how traders are viewing the market helping to predict where it may be headed next. To make it easier to spot these specific trading arrangements and wait for a green light from certain indicators, traders will be able to include a strong and likely successful trading pattern into their daily forex game plan.