Triangles patterns are usually seen in the financially traded assets’ charts like, currency, stock, bond etc. Triangle Patterns could be divided into three categories:
I. The ascending triangle
II. Descending triangle
III. Symmetrical triangle
The markets move whenever they break out of the triangles. Triangles sometime could be reversal patterns. (Prior trend reversal) They are usually looked as continuation patterns. (Prior trend continuation).
Triangle patterns form whenever price action fluctuates between support & resistance and then consolidates during the process. I am going to explain it by four hour chart on the currency pair GBPJPY. The price starts to ‘coil up’ or ‘tighten’, between support level, a lower black line, whereas, resist an upper black line. When anything keeps on compressed, in the end an ultimate ‘breakout’ would take place in the pair.
When, in the chart the candle with label’ entry candles’ is above triangle resistance line, and if this candle manages to close above resistance line, it will be your entry signal. In case it doesn’t happen you will continue to build your time for bullish or bearish breakouts from the patterns.
Sidebar: There is a useful tool in the upper portion of left hand corner on the chart, with tag ‘show time to close’. You can use this tool to know that when this candle would close.
You can add this tool to your Market scope chart by just right click, on the chart. The process is very easy. First you select ‘Add Indicator’ on your chart, then go to ‘other’ tag and there chose, Show Time to Close’, finally click ‘Ok’. This tool will be available on your chart.
In case, the entry candle gets closed in fact above your resistance line, then, you can enter your trade along with a stop, only under the support lines in the area with a label ‘ stop’ in red color. If the breakout is a downside, then, the stop will be placed up your resistance line in the triangle.
When you see on the left side of your triangle from where the patterns start, you would look a green line along with arrowheads at both ends. In any triangle pattern, the distance could be utilized to roughly determine a distance that the price would travel after the breakouts occur.
The green line to the right side of the entry candles has the equal length as I mentioned above. In case of a bull breakout you will place that line on the chart. Then, you would set your limits around the peak of that line. The other way is you would simply determine a number of pips that it covers. One thing is to be noted that you could also set your limits just under the peak level of the limit lines for increasing the probability that your limit will be triggered.
In case of bear breakout, you will reverse the above mentioned process and put the line under support at the exact point of the breakouts.