A Simple Guide on How to Use Ascending and Descending Triangles in Trading
Traders use various approaches to predict the future direction of a financial asset. One of the most common approaches is technical analysis, where they use various indicators to make predictions. Another approach is known as price action.
In price action, they observe various patterns in the market and use this information to make predictions. One of the common price action strategy is the use of triangles.
In this article, we will look at the concept of triangles and help you decide on how you can use them.
Triangle Patterns in day Trading
Triangle patterns are named so because of their shapes. As you already know, a triangle has three sides. The goal for traders is to identify a scenario where a triangle is forming and then use the information to know how to trade.
Ideally, triangle patterns are used to identify areas of potential breakouts.
They are also seen when there is indecision among the broad market participants. This indecision happens because the market is not sure of how the asset will move up.
Broadly, there are three types of triangles in the financial market: horizontal, ascending, and descending triangles.
How to Draw Triangles
Drawing triangles in the financial market is very easy. First, you need to ensure that you are using candlestick patterns. It is almost impossible to identify triangles when you are using bar charts, line charts, and other types of charts.
Second, you need to draw two trend lines. To do this, you need to connect the highest points of an asset. You will have a triangle pattern if the two lines form a pattern that looks like a triangle.
Horizontal Triangle Pattern
This pattern happens when there is a big drop or spike on a financial asset. After this happens, the asset tries to recover but then it finds significant challenge.
As a result, when you connect the higher lives and the lower levels, you will have a triangle pattern. A good example of this is shown on the chart below.
As you can see, the price of crude oil is struggling to move past the declining and ascending levels. As a result, a triangle pattern is formed.
As a trader, you need to wait until the pair approaches the tip. When this happens, you will have higher chances of seeing a major breakout. This breakout could happen in either direction. In most cases, it happens before a major information is released.
Ascending Triangle Pattern
An ascending triangle happens when a financial asset is moving higher but then finds resistance. You draw it by joining lower points and the point where it forms a resistance. A good example of this is shown on the chart below.
The ascending triangle pattern when bulls start to worry about the upward direction of the asset. As they do this, they find some significant resistance.
When an ascending triangle pattern happens, the likely scenario is that the asset breaks out higher.
Descending Triangle Pattern
Descending triangle is the opposite of an ascending triangle. It happens when a pair finds support when it is moving downwards. It is drawn in a similar method as an ascending triangle.
A good example of this type of triangle is shown below.
In most cases, a descending triangle pattern usually breaks out downwards.
When using triangle patterns, it is important to do several things. First, it is important that you use them in combination with other technical indicators. Doing this will help you avoid being in a false breakout.
Second, it is important that you use a stop loss to protect you from a major reversal. Finally, you need to be patient and wait for a breakout.
External Useful Resources
- How could you recognize the difference in shapes between a pennant and triangle? – Quora
- Discussions about triangles – Tradingview