Finance

Triangle formation and how to trade them

Triangle patterns are effective in assisting you to understand the present trend in any chart. They are the indispensable areas of consolidation and can assist predict whether a trend is set to continue or reverse. They can also help visualize modifications in price volatility, even as they offer high momentums trades as well as limited downsized risk.

Triangles formation

A triangle pattern signifies a period of decreasing volatility even as prices move within the triangle. Following the crossing of a triangle formation, either downwards or upwards, volatility as well as momentum booms. Triangles are discrete formations.

At the beginning of their formation, they are found at the widest point. Subsequently, they move sideways by contracting their price range. Eventually, once the price crosses above or below a triangle formation, a strong momentum is brought forth.

How to trade triangle charts

Symmetrical triangle

A symmetrical triangle is a chart formation in which the slope of the price’s high and the slope of the price’s low converge together to a point where it looks like a triangle. The occurrence during this formation is that the market is making lower highs and higher lows.

This basically implies that neither the buyers nor the sellers are pushing the price far enough to make a clear stand. In case this was a battle between sellers and buyers, then it can be concluded that it would be a draw. This is also a type of consolidation.

In many ways, symmetrical triangles take place when the price moves between strong support and a resistance level, thus keeping a slope of lower highs and higher lows. They are also formed by two converging trendlines which contain a series of lower highs and lows. The price breakout direction cannot also be predicted until one of the two trendlines is crossed.

Ascending triangle

This type of triangle chart pattern happens when there is a resistance level and a slope of higher lows. This implies that there is a particular level where buyers cannot exceed. However, they are gradually beginning to push the price up as evident by the higher lows.

Ascending triangles can also be formed prior to the release of vital news or data. As the market indicates hesitation regarding where it is heading, volatility steadily decreases by forming a sideway formation. Ascending triangles are also usually followed by uptrend breakouts. This means that they are considered as bullish formation. The breakouts usually occur at the end of the ascending triangle.

Though it does not happen most of the times, sometimes ascending triangles break out from below. This happens if the resistance level is too strong, and there is not enough demand to push the price through it. When this occurs, the trade will be stopped-out. As continuing patterns, ascending triangles are usually more dependable than ascending triangles as reversal patterns.

Descending triangles

Descending triangles occur when the price of a CFD has reached a support level and then it moves sideways keeping a slope of lower highs. Generally, a descending triangle is the exact opposite of an ascending triangle. While ascending triangles are seen as bullish formations, descending triangles are seen as bearish formations.

There are times when descending triangles can break out from above. This happens when the support level is strong, and there are not enough supply to push the price through it. In case a descending triangle is formed during a downtrend, then it is a more secure formation. In descending triangle chart patterns, there is usually a string of lower highs which forms the upper line. The lower line is a support level in which the price cannot seem to break.

Over and above, triangle formations, especially symmetrical triangles, as well as the bullish and bearish sides are known to go through early breakouts, which give investors ‘head fake’. It is advisable that one should hold off for a day after the breakout and determine whether or not the breakout is real.

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