The use of Triangle Chart Patterns in Day Trading

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. In this strategy, they use technical indicators like moving averages sparingly

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.

The pattern happens mid-trend as bulls and bears battle it out on the next direction of a trend.

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.

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How to Draw Triangles

While it is possible to identify these patterns visually, it is always important to use the trend line features to draw them.

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.

Horizontal Triangle Pattern

Horizontal Triangle Pattern

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.

You need, as a trader, to wait until the pair approaches the tip (usually seen as a breakout point).

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.

Ascending Triangle Pattern

Ascending Triangle Pattern

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.

Descending Triangle Pattern

Descending Triangle Pattern

In most cases, a descending triangle pattern usually breaks out downwards.

Practical Examples

The chart below shows a good example of a descending triangle pattern on the USD/CAD pair. As you can see, the pair found important support at the 1.3848 level.

As the price climbed, it found some resistance, which is an indication that there were not enough buyers to push it higher.

Therefore, this pattern means that the pair will breakout lower.

USD/CAD pair chart

Another example of a symmetrical triangle pattern is shown on the four-hour XAU/USD chart shown below.

As you can see, it seems like there is indecision between buyers and sellers. Because the price was previously in an uptrend, the arrangement suggests that the price will breakout higher.

XAU/USD pair chart

Advantages of the triangles pattern

There are several benefits of using triangle patterns when trading. First, the patterns are usually easy to spot, even among new traders.

Second, drawing the triangle patterns is usually relatively easy as you have seen above.

Finally, you don’t need to use technical indicators to use the triangle pattern well.

Conclusion

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

 

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