Introduction
Triangles can be best described as a horizontal trading pattern. At the beginning of its construction, the triangle is at its widest point. As the market continues to trade sideways, the trading range narrows and the point of the triangle is formed. In its simplest form, the triangle shows a losing interest in an issue from both the buy side and the sell side: the supply line decreases to meet demand.
Think of the bottom line of the triangle, or lower trend line, as the demand line, which represents support on the chart. At this point, buyers of the issue outweigh sellers and the stock price begins to rise. The supply line is the top line of the triangle and represents the overbought side of the market when investors are moving out, taking profits with them.
Ascending Triangle Pattern
Often a bullish chart pattern, the ascending triangle pattern in an uptrend is not only easy to recognize but it is also a slam-dunk as an entry or exit signal. It should be noted that a recognized trend must be present for the triangle to be considered a continuation pattern. In the above image, you can see that an uptrend is in place, and the demand line, or lower trendline, has been drawn to touch the base of the rising low. Two elevations have formed on the top line.These highs do now no longer ought to attain the equal charge factor however have to be near every other.
Buyers may not be able to break the supply line at first, and may have to take a few runs before establishing new ground and new highs. Chartists will look at an increase in trading volume as a key signal that new highs will be made. An ascending triangle pattern will take about four weeks to form and will probably not last more than 90 days.
How do people (buyers) know when to jump into the issue? Once the price action breaks through the top line of the triangle with increased volume, most analysts will take a position, which is when the stock price should rise by an amount equal to the widest segment of the triangle.
Descending triangle pattern
The descending triangle is primarily identified in a downtrend and is often considered a bearish signal. As you can see in the above image, the descending triangle pattern is the inverse image of the ascending triangle pattern. The two low points on the chart above form the lower flat line of the triangle and, again, should only be close rather than exactly the same in price action.
The development of a descending triangle takes the same time as an ascending triangle, and volume again plays an important role in breakouts to the downside. (Some analysts believe that increased volume is not so important. However, we consider it paramount. We always consider the strength or weakness of volume as “the straw that stirs the drink”.)
Symmetrical Patterns
So far, we have seen two triangle patterns: one from an uptrend and bullish market moves and one from a downtrend with definite bearishness. On the other hand, symmetrical triangles are considered continuation patterns developing in markets that are, for the most part, aimless in direction. The market seems indifferent in this direction. Therefore, supply and demand appear to be the same.
During this period of indecision, fluctuations seem to converge at the point of the triangle, with virtually no significant volume. Investors don’t know yet which position to take.
However, when investors figure out which way to take the issue, it moves north or south with larger volume than in the indecisive days and/or weeks before the breakout. Breakouts usually occur in the direction of the current trend. But, if you are looking for an entry point following a symmetrical triangle, jump into the field at the breakout point.
The Advantages of the Triangle Trading Strategy
Utilizing the Triangle Trading Strategy offers several advantages:
Precision: This strategy helps traders pinpoint potential price movements, allowing for precise entry and exit points.
Risk Management: By understanding the patterns, traders can set stop-loss orders to mitigate potential losses.
Versatility: The strategy is adaptable and can be used in various markets, including stocks, forex, and cryptocurrencies.
Confidence: Trading based on patterns and data analysis instills confidence in traders, reducing emotional decision-making.
Conclusion
These patterns, symmetrical triangles as well as bullish and bearish patterns, are known to experience early breakouts that give investors “head fakes.” Wait a day or two after the breakout and determine if the breakout is real or not. Experts look for a one-day closing price above the trendline in bullish chart patterns and below the trendline in bearish chart patterns. Remember, look at the volume on the breakout and confirm your entry signal with the closing price outside the trendline.
