Triangle Chart Patterns are very profitable & trade setups.
The ability to recognise and trade them is indispensable for a price action trader. There are 3 types of triangle chart patterns and the chart below shows the differences between each very clearly:
Let;s start with the symmetrical triangle pattern first.
Is A Symmetrical Triangle Bullish Or Bearish Chart Pattern?
The Symmetrical triangle chart pattern is a continuation pattern, therefore, it can be both a bullish or bearish pattern. This means that if you see it in an uptrend expect a break to the upside and vice versa as shown.
Symmetrical triangle breaking to the upside (bullish symmetrical triangle)
How To Draw A Symmetrical Triangle
You will see price moving up and down but this up and down movement is converging to a single point.
You need a minimum of 2 peaks and 2 troughs to draw the two trendlines on both sides.
It will be only a matter of time before price breaks out of the pattern and either moves up or down
Two Simple Ways To Trade The Symmetrical Triangle
#1: Trade the Initial Breakout
The best way is to confirm that the breakout actually happens with a candlestick before placing your order. What I do I is for example, say I’m watching a symmetrical triangle form in the 4hr charts and I know that soon a breakout will happen. I then switch to the 1hr chart to wait for the breakout to happen. If a 1hr candlestick has broken the triangle and closed below/above it, that’s my trade entry signal. So I will place a pending buy stop/sell stop order to catch the breakout from there. Learn more about multi-timeframe trading here.
Often I want to make sure that the 1hr candlestick closes outside of the triangle before I enter a pending buy stop or sell stop order to capture the move that happens to avoid false breakouts while the candlestick has not closed yet.
But here’s the problem with trading triangle breakouts, see chart below:
I don’t like trading breakouts like the one shown here and here’s why:
- The stop loss distance is too large. I’d prefer to enter trades with breakout candlesticks that are close to the trend lines that have been broken.
- I often see that such breakout of extremely long candlesticks are not sustainable and price will often tend to reverse after such candlesticks as can be seen by the chart above…notice that after the breakout candlestick, there was one bearish green pin bar and then for the next 4 candlesticks afterwards, the price went down.
- This is what tends to happen with such long breakout candlesticks. So if you entered a buy order using that long breakout candlestick above, you would have to wait a while for your trade to turn profitable.
2: Trade the retest of the trendline that is broken
- The second way to enter is to wait for a retest of the broken trendline in the triangle pattern then either buy or sell.
- This may also be handy if you had an extremely long breakout candlestick on the initial breakout, you best option is to wait for a retest of the breakout trendline then if that happens you enter.
Stop loss Placement Options On Symmetrical Triangle Pattern
Here are 3 ways on how to place stop loss on triangle patterns, which include symmetrical, ascending and descending triangle patterns which you will learn next. The stop loss placement techniques here are applicable to all triangle patterns so take note of that:
Ascending Triangle Chart Pattern
And ascending triangle pattern looks like this chart shown below:
And this is how a real chart looks like:
is Ascending Triangle Pattern Bullish Or Bearish?
It is considered a bullish continuation pattern in an existing uptrend. So when you see this forming in an uptrend, expect a breakout to the upside.
However, it can also be a strong reversal signal (bullish) when you see it form in a downtrend.
Stop Loss Placement Options
You can use the strategies given in symmetrical triangle.
Take Profit Options
I prefer to target previous resistance levels as my take profit target.
Or as shown on the chart below, you can use the “x” pips distance as your take profit target. Another way to do it would be say 3 times the “x” pips or 2 times the “x pips” distance. That should give you your profit target level(s).
Descending Triangle Chart Pattern
Important things to note about the descending triangle chart pattern: The descending triangle chart pattern is characterized by descending resistance levels and a fairly horizontal support levels converging to a point until a breakout happens to the downside as shown below:
And this is how a descending triangle looks like on a chart shown below:
Is Descending Triangle Pattern Bullish Or Bearish?
It is a bearish chart pattern that forms in a downtrend as a continuation pattern.
However, this pattern can also form as a bearish reversal pattern at the end of an uptrend.
Therefore regardless of where it forms, it’s a bearish chart pattern.
How to Trade The Descending Triangle Formation
Similar to the other 2 triangle patterns, you can either trade the initial breakout or wait to see if price reverses back to test the broken support level and then sell.
Note: with a triangular pattern, I often prefer to wait for a candlestick to breakout and close outside of the pattern before I enter a trade. This helps to reduce false breakout signals.
But there will be times when I will just trade the breakout with a pending sell stop order just a few pips under the support level to catch the breakout when it happens but when I do that, I sit and watch the close of the 1hr candlestick to make sure that it does not close above the support line (if that happens, it may mean a false breakout).
And then there’s the issues of extremely long breakout candlesticks again like this:
As mentioned previously:
- when you have such extremely long breakout candlesticks like that, better to sit and wait to see if price will reverse and get back up to the support level that was broken ( a retest) which will now be acting as a resistance level and then sell when that level is touched.
How To Take Profit
I prefer to use previous support levels, lows or troughs and use those as my take profit target level.
Another method of take profit that is commonly used is to measure the height of the triangle and if the height is said 100 pips then that is your take profit target. The chart here should give you a clear idea of how it’s done.
By now you should have a clear picture of what triangle patterns are and how to trade them.