Triangle Pattern Forex – Chart Patterns
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Learning how to trade triangle patterns in forex correctly is paramount if you are a first-time trader. Traders can identify major trading patterns in real-time and improve profitability through the use of this pattern.
Triangle pattern forex trading has been used for many years to identify the market’s technical analysis by advanced traders. Traders can use this technique to analyse the trade markets and open positions.
Have a look at a detailed guide below where we have explained different types of triangle patterns, how to trade, limitations, and advantages.
Introduction about triangle pattern forex
The triangle pattern is the most popular in the forex market. From one trendline to the other, fluctuations are possible due to the narrowing range. Triangle boundaries can be quickly drawn along with two extremes, respectively.
As soon as you notice two endpoints of a price movement, you can draw a line between them and define a border. As a result, the price will bounce back in the future.
Within this triangle trend, there is a trade barrier between below and above. Thus, to trade with triangle patterns, one needs to be aware of signs of a narrowing triangle.
Why are triangle patterns used in forex?
Markets never fall or rise freely, as we already know. All sorts of trades are entered with varying strategies at different times of the day.
After an initial trend, some trades will book a profit, and others will increase their exposure. As a result of this dynamic behaviour, the trade market will fluctuate, resulting in a retracement.
The triangle pattern forex is caused by such retracement, which allows a trader to choose a direction in which to start trading.
A quick guide on different types of triangle patterns
A triangle pattern forex is generally divided into three main types, namely:
- Symmetrical triangle
- Ascending triangle
- Descending triangle
Now let’s discuss each of the above triangle pattern types in detail and how you can trade on them successfully.
1. Symmetrical triangle
First, we have a symmetrical triangle, an isosceles pattern, broken up and down at a specific convergence point. This triangle pattern is formed during the end of the flat period when a trade market starts the latest long-term trend.
Before you trade with a symmetrical triangle, it is essential to identify the technical analysis of this pattern. This scenario might confuse the trader to differentiate between symmetrical and flat patterns because both act the same.
Above all, a symmetrical triangle also indicates a specific continuation of early movement and not the reversal one. Two converging lines are drawn in which the upper one (A-C) is drawn through two highs, and the lower one (B-D) is drawn through two lows.
In short, a symmetrical triangle pattern is formed as soon as these four points (A, B, C, and D) are established together. Upon the establishment, the volume of the pattern is generally reduced.
How can you trade symmetrical triangles?
Imagine a stable uptrend is formed on a trade market before the symmetrical trade occurs. In this situation, there is a considerable probability to break the upper border of this pattern and let the price of that specific financial instrument increase.
In case if the downtrend is settled on-trade market, then a sudden breakdown of the lower border in the pattern is expected. To trade a symmetrical triangle, you have to place the pending sell stop or buy stop order above or below the border and wait until it is not entirely triggered.
2. Ascending Triangle
The Ascending Triangle is also known as the Forex Bullish Triangle. With this triangle pattern, we generally mean that a series of bullish trends already appear in the market.
On this bullish trend, a seller can easily manage to form a local resistance level. And it gradually becomes difficult for the buyers to overcome the whole situation. After the occurrence of a breakout, this overall bullish trend will continue.
In this triangle pattern, the upper trend line has a horizontal line which represents the resistance. The lower border represents the support that has an upward slope. Once you approach closer to the calculated intersection point, the absolute amplitude of oscillations within the figure starts to reduce.
In most cases, this ascending triangle will work as a bullish trend continuation trade pattern. Nevertheless, the whole signal strength is based on entering the trade pattern and moving in the breakout direction.
How can you trade ascending triangles?
Once the market enters the pattern from the bottom to top and eventually breaks through the horizontal border upwards, this signal is strongest. This bottom-to-top movement is a bullish trend.
But if the price enters the trade pattern from top to bottom, i.e., bearish trend and breaks down the upper border, this bullish signal turns out weak.
In short, if the ascending triangle pattern is formed within a downtrend, then most probably, it will appear as a bearish breakdown.
3. Descending Triangle
The last triangle pattern is the descending pattern which is a sort of trend continuation pattern. But you can also indicate it as a reversal.
A descending triangle generally appears in the downtrend, which means that the price will likely move down all the time. But still, it is mandatory to wait for the breakout.
But the situation is opposite if the descending triangle is moving in an uptrend direction. You have to wait for the time till a possible breakout occurs in the upper border of the triangle.
The use of descending triangles is common during solid trends, such as in bull or bear markets. Even though they are associated with medium-term patterns, you can still notice them on long-term charts based on the trend’s nature.
How can you trade descending triangles?
Once the market enters the descending pattern from top to bottom and eventually breaks through the horizontal border upwards, this signal is strongest. This top to bottom movement is the bearish trend.
But if the price enters the trade pattern from bottom to top, i.e., bullish trend and breaks down the upper border, this bullish signal becomes weak.
In short, if the descending triangle pattern is formed within an uptrend, then most probably, it will appear as a bullish breakdown.
Appropriate position sizing & risk management
Even if you follow a powerful strategy or a trading plan, you should never depend on the trading account, just on the analysis! Instead, pay attention to the risk through suitable position size, essential for a new trading experience.
You should never risk more than 1-2% of your entire capital within a single trade. You can, later on, maximise the profit by inspecting the total ratio on the risk to reward cycle. Note that the reward has to be twice as much in comparison to risk.
What are the advantages of the trading triangle pattern?
Below are some of the key advantages of trading a triangle pattern as a trader:
- An investor can quickly identify the triangle patterns once they know what they are looking for.
- You can find these triangle patterns in all financial instruments and market types. This includes forex, stocks, and cryptocurrencies. Based on the market you are trading in, you can also have the triangle patterns in your trading plan.
- According to the triangle pattern, a breakout is always imminent. Therefore, investors can easily predict the breakout direction, massive profits can be amassed with less risk, and a high probability can be noticed.
- A triangle pattern can be combined with the rest of the indicators to assess the trade price’s future performance. Combining triangles with the other trading tools available inside or outside the technical analysis is relatively easy.
- Once the breakout is predicted accurately, investors can grab a massive gain in a short trading period.
- The Triangle pattern has a higher upside as compared to the reversal pattern. It often predicts the breakdown of trade barriers.
Limitations of the trading triangle pattern
The best thing about the triangle pattern is that it guarantees you to predict the future performance and price of the trade like any other indicator and trading tool. In addition, it often helps you assess the financial markets as a new trader to see how the price changes its movement.
Uncertainty and volatility in the trade market can be somehow baffling no matter how much knowledge a trader has about their trading methods or strategies.
But this is not the case with triangle pattern forex! The Triangle pattern does not face any uncertainty because it has its limitations. Few fundamental limitations are discussed below:
- Triangles take a long time to identify and develop themselves in comparison to other chart indicators and patterns.
- The Triangle pattern has characteristics that are similar to other trade patterns such as Pennants or Wedges. This might make it complicated for the novice to differentiate each of them.
- To trade the triangle pattern, you have to leverage the old price performance data. This gives you an estimation/prediction of the upcoming trade price in the future.
- Any false breakout in a triangle pattern can be costly for the investor, leading to some enormous losses. Therefore, unlike other trading patterns, investing in a triangle pattern is a bit risky.
Key points to remember to trade triangle patterns
- Make sure you analyze the trend line’s angle and slope to determine the type of pattern triangle you want to choose. This can be ascending, descending, or symmetrical.
- How the troughs and peaks are generally formed will indicate the imbalance occurring between bears and bulls.
- Triangles will somehow display a loss of momentum from one side, i.e., bulls in support of other, i.e., bears.
- MCAD and RSI help to measure the momentum in the triangle pattern.
- Triangle patterns can also fail as there is no 100% accurate trading system. Therefore, you should wait for the breakout to display itself on a pattern. This breakout will appear as soon as a price closes itself outside the forex triangle pattern.
1. What does a triangle pattern represent?
A triangle is a chart pattern that depicts drawing trend lines along with a converging price range. This price range connotes a pause within a prevailing trend. According to technical analysts, these triangles act as continuous patterns.
2. How can you use triangle patterns in a trading view?
To use triangle patterns in a trading view, you must place the trading points in 4 alternating highs and lows. Points A & C can be on consecutive highs, and B & D points can be on successive lows.
3. What is meant by a bullish symmetrical triangle?
A Symmetrical Triangle Pattern will indicate the current price consolidation period before the price breaks out. This triangle pattern can be formed in an ongoing uptrend. Later on, the prices break out from the upper trend line.
4. How can you determine a type of triangle?
To determine a type of triangle pattern, a trader should analyze the angle and slope of the trend line. This includes ascending, descending, and symmetrical patterns.
5. How can you trade triangle patterns in forex?
A triangle chart pattern can be formed by drawing two different converging trend lines because the price is temporarily moving in sideways directions. Traders can also look for any subsequent breakout in the following direction of the preceding trend. This gives them a signal to enter a trade.
To sum up the whole discussion, triangle patterns are considered to be a form of continuous patterns. Furthermore, these triangles are generally divided into ascending, descending, and symmetric forms.
From all the above types of triangle patterns, each has its interpretation and trading functionality. However, no matter whatsoever triangle pattern you are trading with, it is essential to look for the breakout.
Be careful with the angles and slopes of the triangle to perform a successful trade.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst