The Triangle chart pattern has proved to be one of the most commonly used day trading patterns. They are generally used when trading stocks and provide in-depth analytic insights in volatility decrease as well as current market conditions. This fact ensures multiple trading opportunities that make the triangle pattern very flexible when it is only forming or completed.
Traders will have to work with three different forms of the triangle pattern. In this article, we will discuss how they help to develop anticipation or breakout strategies that mainly suit day trading strategies. If you are able to understand how they work, you will have a chance to manage risks and minimize losses.
As we have already mentioned, the triangle pattern is a very important tool in defining the current market condition. What's more, traders will have an opportunity to:
Now, let's see how the pattern works and how you can use it during your day trading.
As a rule, the triangle chart depicts the price that enters a tighter range within a given timeframe. In other words, we have a chance to visually observe the battle between bears and bulls in real-time.
The pattern refers to the continuation type. It means that the price will keep moving in the direction of the trend even when the pattern is completed. What's more, traders should consider that the price was moving before the pattern has been formed.
To form a triangle pattern, it is supposed to make at least 5 touches of the support and resistance. For instance, it may go as follows:
The situation may turn vice versa. Whatever happens, make sure the triangle pattern touches the support and resistance in not less than 5 points.
As you already know, the pattern can be used in three different forms. Then define the trading strategy you should opt for. The three forms include:
Now, let's have a closer look at each of these three forms.
When the price makes confined up and down movements to a smaller area over some period, the symmetrical triangle occurs. The price increases or drops do not always mean reaching the highs or lows. The main point is to create slight swings that should be connected with the trend line. As you will see, the line forms a symmetrical triangle when connecting price highs and lows.
Note: do not rush to draw the line right at once. A good idea is to wait until the price makes at least 3 swings to reach its high or low. This is due to the fact that the price can go up or down several times in the same pattern. Be patient and wait.
This particular form appears when the swing lows rise along with the price highs that reach the same level. The ascending triangle is formed with a horizontal price that connects price highs and the swing rising line that connects the price lows (you will see it angled upwards).
Note: you will be able to form the pattern only when the two price highs or lows can be connected. Although the price is still confined in a smaller space, it can still move to its highs in case the lows move up.
When swing highs keep lowering continuously over time, a descending triangle pattern occurs. In this case, swing lows reach the same level as the previously observed latest lows. In other words, you will need to draw a horizontal line that connects points with similar swing lows. The second line will connect swing highs that are falling to form a descending triangle pattern.
Note: there is nothing to worry about if the line fails to connect points precisely. Draw them to fit the most appropriate price action.
The triangle breakout strategy Is a flexible trading technique. It can be used with any of the above-mentioned triangle pattern forms. What's more, the execution process will always look the same no matter if you use the ascending, symmetrical or descending form.
The main idea of the triangle breakout strategy is to purchase stocks once the asset has moved above the upper trend line. If it drops below the trend line that connects lows, you need to go short and sell stocks. If you are able to capture the price that moves opposite the trend line, you have great chances to make a good profit.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.