What is Triangle Pattern in Foreign Exchange?
The triangle pattern includes the most popular price pattern among traders. If able to recognize it, then it can help you to profit.
In forex technical analysis, the triangle pattern is one of the most famous patterns among traders. This pattern usually signals the continuation of the old trend, and if you can recognize it it can be very helpful in observing the price action. What is a triangle pattern?
The triangle pattern can be described as a horizontal trading pattern. At the beginning of its formation, the triangle is at its widest position. Then the trading range narrows as the market moves sideways, and that is where the points that form the triangle (triangle) are formed. In the chart, the bottom line on the triangle represents the support, while the upper line of the triangle represents the overbought side of the market, where the investor will pull in profit.
There are three types of triangle patterns that can be formed: ascending triangle, descending triangle, and symmetrical triangle.
Ascending Triangle Patterns
Ascending triangle that occurs when the price rises uptrend (move up) is a bullish chart pattern that is very easy to identify and can be used as a signal entry or exit. However, it should be noted here that the ascending triangle pattern can only be considered as a signal of continuation of the old trend, if there is an ongoing trend.
In the picture above, you can see that the uptrend is happening. The down trend line is drawn with rising levels of support. While the two high levels form the top trend line. The high levels that form the top trend line do not necessarily reach the exact same price level, but should be close to each other.
Initially, buyers in the market may fail to break the trend’s upward line, and it takes time to dabble through that level, before finally forming a new high level. Traders who observe this pattern can monitor trading volume as an indication that a new high level will be formed.
When will a trader who will buy can open a position? most traders will open a position once the price action penetrates the top of the triangle along with the increase in volume.
Descending Triangle Patterns
Descending Triangle usually occurs when the trend is downtrend and is often considered a bearish signal. As you can see in the picture below, the Descending Triangle pattern is exactly the opposite of the Ascending Triangle.
Both low levels on the chart above form the support line on the triangle pattern. In this pattern too, the price points that make up the low level do not have to be exactly the same. Large trading volume also again plays an important role in signaling the price breakout out of the triangle towards the down (bearish).
Symmetric Triangle Pattern (Symmetrical Triangle Pattern)
Well, we’ve examined two triangle patterns: one pattern when the market is bullish, and one pattern when the market is bearish. Unlike the two, a symmetrical triangle pattern occurs in a market whose direction of price is not clear. Therefore, the top and bottom trend lines look the same, nothing flat.
In such uncertain market conditions, high and low levels appear to form two lines forming the funnel, without any significant changes in trading volume. Investors do not know what position to take. Often, breakouts occur towards an ongoing trend in a larger timeframe. However, if you are looking for entry points to open positions after the symmetrical triangle pattern is established, then it is better to do so after the breakout point appears.
These triangle patterns, either ascending, descending, or symmetrical, often give rise to a ‘fake signal’. Therefore, if you want to take a position after these patterns are formed, it’s best to hold on until you’re sure the breakout is real.
The simplest way is to wait until a single candle is fully covered above the ascending pattern, or a fully enclosed candle under a descending pattern. Remember also to monitor trading volumes at breakout and confirm your entry signals with other indicators.