Triangle Chart Patterns are among the most famous chart patterns in technical analysis. There are some professional traders who only trade Triangle Chart Patterns because they believe triangles are much easier to locate, and also much easier to take a position, set the stop loss and target, when a triangle is formed on a bullish or bearish market.
I am sure after reading this article, you will also think seriously about using this chart pattern in your trades as a trader.
There are three types of Triangle Chart Patterns:
- Symmetrical
- Ascending
- Descending
Symmetrical Triangle is the most popular triangle pattern. Therefore, I start with this pattern:
1. Symmetrical Triangle Chart Pattern
In Symmetrical Triangle, both of the two legs are pointed to the same point. It means both of the legs have the same angle against the horizontal line.
Depend on the direction of market, there are two kinds Symmetrical Triangle: Bullish and Bearish
However, Symmetrical Triangle also forms on the ranging and sideways markets.
Bullish Symmetrical Triangle
Bullish Symmetrical Triangle Chart Pattern forms at the top of an uptrend. In most cases, a Bullish Symmetrical Triangle forms in an uptrend will break above. It means price will break above the triangle’s resistance and the uptrend will be continued. Therefore, Bullish Symmetrical Triangle in an uptrend is usually a continuation pattern.
However, it doesn’t means that you should go long as soon as you see a Symmetrical Triangle formed on a bullish market. You should always wait for price to break above the triangle’s resistance, and then you go long. I will tell you how later in this article.
Bearish Symmetrical Triangle
Bearish Symmetrical Triangle forms at the end of a downtrend. Like Bullish Symmetrical Triangle, a Bearish Symmetrical Triangle is usually a downtrend’s continuation signal, and price will break down eventually. However, it is not a good idea to trade based on these rules, simply because markets move on their own ways and they don’t necessarily follow these rules. You cannot go long just because you see a Symmetrical Triangle formed on a bullish market. You cannot go short just because you see a Symmetrical Triangle formed on a bearish market. Wise, experienced and disciplined traders have a safer way to trade these kinds of chart patterns:
Taking Positions After Symmetrical Triangles Breakouts
On a bull market, you have to wait for the Symmetrical Triangle resistance breakout. No matter what time frame you use to trade, when a candlestick closes above the resistance, you can go long and set your stop loss several pips below the open price of this candlestick.
This is a Symmetrical Triangle Chart Pattern formed on GBP/USD four hours chart. Just see how it looks, and then we will have a closer look at it in the following screenshot:
If you were trading the above triangle resistance breakout, you could go long when a candlestick closed above the triangle’s resistance (see the screenshot below). You could set the stop loss several pips below the breakout candlestick which is the candlestick that closes above the resistance. However, that stop loss could be a little risky, and so it would get triggered if the market goes down to retest the broken resistance. Therefore, you could place your stop loss a little lower, just to be at the safe side. That is why I have indicated three levels for the stop loss on the below screenshot. One of them is a little risky, and the other two are safer.
You have to calculate your positions size based on the stop loss size, not to lose a lot when you choose the wider stop loss. You should choose your position size in a way that you always take a 2-3% risk, no matter how wide or tight the stop loss is.
As you see on the below screenshot, the price went down to retest the broken resistance, after a candlestick broke above the resistance and closed above it. Retesting is something that markets do sometimes. It means, when a market breaks above a resistance, it sometimes goes down to retest the broken resistance. A broken resistance should work as a support. It is the same with support breakout. A broken support line should work as a resistance during the retesting attempt.
Retesting assures you that the broken support or resistance is valid. When a support or resistance line is valid, it will work as a resistance or support line after the breakout and during retesting. If a broken resistance doesn’t let the price go down and candlesticks close above, it means the broken resistance is valid, and you can trust its breakout to go long.
This is something you can clearly see on the below screenshot. Some smart traders wait for the markets to retest the broken resistance or support. A valid retesting assures that the resistance or support is valid and its breakout is reliable and trustworthy. After the breakout, if the market violates the broken support or resistance, you have to be careful not to take any positions, because it means either the support or resistance line you plotted on the chart is invalid, or it is valid but the market has violated it and it cannot work as a resistance or support after the breakout. It increases the probability of hitting your stop loss.
Please look at the screenshot below carefully and pay attention to the entry and stop loss levels, as well as the market retesting attempt after the resistance breakout.
What About the Target?
I do not recommend taking positions with less than 1:3 risk/reward ratio. It means your target has to be at least x3 of your stop loss. For example, if your stop loss is 30 pips, your target has to be 90 pips. It is not only that. You have to move your stop loss to breakeven if the market moves toward the target for a reasonable number of pips which can be the same or twice of your stop loss size.
That was about going long after the resistance breakout when a Bullish Symmetrical Triangle is formed on a bullish market.
Going short with a Bearish Symmetrical Triangle has the same rules. You wait for the market to break below the triangle’s support line. Then you go short and set your stop loss several pips above the candlestick that has closed below the support line. You can consider the safer levels of stop loss as explained above.
Additionally, if you like to take less risk and have safer trades, you can wait for the market to retest the broken support line, and in case the broken support line works as a resistance properly, you can go short.
Is That All?
No. There are some other things that are important to know:
1. As it was explained at the beginning of this article, Symmetrical Triangles do not necessarily have to form always on bull or bear markets. They also form on the sideways and ranging markets. In this case, we can still wait for the price to break above the triangle resistance to go long, or below the support to go short. However, something that you must be careful about in a ranging market is that usually breakouts are not reliable and price can easily violate the broken support or resistance after the breakout, as if there is no support or resistance line there. The reason is that markets are not liquid enough when they are moving sideways. When a market is not liquid enough, candlestick patterns and breakouts can’t work as reversal and continuation signals. They become meaningless.
On ranging markets, it happens a lot that you think you have found a good triangle pattern, but then the market keeps on moving sideways without paying any attention to the triangle. It keeps on moving sideways and reaches the area that we call it Apex. Professional traders say that when price reaches Apex, the triangle is not valid anymore and the next direction of the market can be anyone’s guess. So I recommend you not to use triangles and also other chart patterns to trade on a ranging market. You’d better to wait for the market to break out of the range and start moving up or down strongly, and then you wait for a trade setup.
2. Symmetrical Triangles do not always work as continuation patterns. They can work as reversal patterns too. It means they can form at the end of a bull market and then instead of going up after breaking above the resistance of the Triangle, the market reverses and goes down after breaking below the support line of the triangle. It is the same with bear markets. A Symmetrical Triangle at the end of a bearish triangle can sometimes work as a reversal pattern, and so the market breaks above the triangle’s resistance and goes up.
That is why I told you earlier that you should not take a position just because you have located a Symmetrical Triangle either on a bull or bear market. It is correct that it is more possible that price breaks above the resistance and goes up on a bull market, however it may not happen all the time, and markets sometimes violate this rule that says, “on a bull market a Symmetrical Triangle breaks up; and on a bear market a Symmetrical Triangle breaks down.”
To stay away from losses, you have to wait for a breakout, and then take a position, and you should not trade based on the rules that are written on the paper. Markets do not pay any attention to these rules, and they move on their own ways.
Here is an example of a bull market (uptrend) that went to a range for a short time, and then reversed and went down after forming of a Symmetrical Triangle and the breakout of the triangle’s support. As you see, although the market should break above the Triangle resistance and go up according to the Triangle’s rule, it reversed and went down:
3. It is usually clear where to take the position and set the stop loss. But it is hard to say how long you can hold the position, and how far the market will keep on moving after the Symmetrical Triangle breakouts. As it is hard and sometimes impossible to predict the size of the market movement after a trade setup, some traders always take positions with a constant level of risk/reward ratio. For example, they always take 1:3 positions. However, when it is sometimes possible to predict the size of the movement to maximize your profit and have wider targets, why shouldn’t you do it?
Some traders and chartists have tried to predict the size of the market movement after the Symmetrical Triangle breakouts. Their efforts have resulted in some good points that are so helpful in holding and setting the target orders of the positions that are taken based on Symmetrical Triangle breakouts.
This part is a little harder to understand. So please pay more attention.
Please take a look at the screenshot above one more time. As you see, the price broke below the support line of the Triangle and then went down strongly. Now, plot a line parallel with the upper leg of the Triangle, started from the beginning of the triangle lower leg (see the screenshot below).
I mean a line which is parallel with AB leg, and is started from C point. I have already plotted this line on the below chart. It is CD line (the dashed line.)
As you see, the market has reacted to this line very precisely and accurately. At least the first reaction of the market to this line (marked with #1 on the below chart) could be considered as the first target:
Now, the question is how could we know where the market would touch CD line, and how far the market would go down after the breakout?
There is an answer for this question too. Just plot a vertical line from A point and let it touch CB leg. Now measure how many pips the length of this vertical line is. Whatever it is, the market downward movement will be the same size as this vertical line, after the breakout.
I have already done that on the chart above. You can see the result on the below chart.
AE line is the vertical line I talked about. It is started from A point and has touched CB leg. Then, I duplicated AE line and moved the duplicate to F point which is where the price has broken below the support line. FG vertical line is the duplicate of AE line. As you see, G point is exactly at the same level that the price has touched CD line (#1 point.)
It is amazing, isn’t it?
You can easily predict the direction and destination of the market using these simple methods. Point #1 can be our guaranteed target. The market went up after that and then went down again and broke below point #1 too. But, it bounced up again when it touched CD line which is the line we already had on the chart since the Symmetrical Triangle support breakout (point #2.)
Are these movements guaranteed 100%?
Absolutely not. If they were, now there would be an untold number of millionaires. But something that guarantees your profit at the end of the month is that you wait for a proper breakout and trade setup, and enter the market and set a proper and reasonable stop loss. Therefore, if the market doesn’t behave as you expect, then you will be out with a small loss, and you can try your luck and recover your loss with the other trade setups. This is how it works.
Let’s take a look at another example.
The below chart shows a Symmetrical Triangle resistance breakout. As you see, the same calculations and predictions we had above are applicable and true about this trade setup too. However, as it was already explained, movements and directions are not guaranteed and exact as they are predicted by the plotted lines. In spite of this and although we see some violations on the chart below, all target points are reached. Do you agree?
So, this is how you trade Symmetrical Triangle Chart Pattern briefly:
1. Symmetrical Triangle Chart Pattern can work both as the continuation and reversal pattern. In an uptrend, it is more probable and expected that a Symmetrical Triangle Chart Pattern breaks above the resistance, and so the uptrend to be continued. When formed in a downtrend, it is also more expected that a Symmetrical Triangle Chart Pattern breaks below the support line and goes down. However, you have to be aware that Symmetrical Triangles also work as reversal patterns on uptrends and downtrends. Therefore, be careful and not to take any position before a breakout that indicates the direction.
2. Be precise and disciplined about your stop loss and target orders, and set them according to the directions I gave you above. Calculate your position size properly not to take more than 2-3% risk in each trade setup.
3. Although we do our best to have safer positions, our stop loss will be triggered sometimes. This is absolutely normal and happens for all traders, even the most professional ones. None of the above techniques are guaranteed. Additionally, it takes you some time to master these techniques and become able to locate proper and reliable trade setups. Losing is part of this game and has to be tolerated and handled properly and professionally. Do not expect that markets hit your target anytime that you take a position. And do not get disappointed when markets hit your stop loss sometimes.
2. Ascending Triangle Chart Pattern
Ascending Triangles are known as bullish continuation patterns. It means they usually form on bullish markets, and they usually break above, and so the uptrend will be continued.
In an Ascending Triangle, the upper leg is horizontal and the lower leg is pointed to the upward direction. Therefore, unlike Symmetrical Triangles that both legs are pointed to the same point, in Ascending Triangles, the horizontal leg is pointed to right, and the lower leg is point to upside.
The reason is that there is a resistance level that prevents the price from going up, and so the price bounces down each time that it tests this resistance level. But, as the market is bullish and there is a strong bullish pressure, the market tries to go up and test the resistance level again before it reaches the low price it formed last time. Therefore, after a few times of going up and down, an Ascending Triangle will be formed:
Like in Symmetrical Triangles, you have to wait for resistance breakout to go long when you locate an Ascending Triangle on a chart. Do not go long just because an Ascending Triangle is formed at the top of an uptrend.
Below is an Ascending Triangle formed on GBP/USD daily chart. You could take a long position after the first candlestick closed above the triangle’s resistance. You can see three levels for stop loss. Based on the risk you want to take, you can choose one of the stop loss levels. I recommend the second level:
The same analysis and tricks we used to predict the size of the price movement after the resistance breakout in Symmetrical Triangles can be applied to Ascending Triangles too. The screenshot below is the same as the above one, but I am showing you the prediction of the price movement after the resistance breakout on the below screenshot. CD line is parallel with AB leg. FG line is a duplicate of CE line that shows the size of the upward movement after the breakout:
That was all about Ascending Triangle in technical analysis. Make sure to read the the explanations and examples I brought to you about Symmetrical Triangles here in this article because the same important points can be applied to ascending triangles too.
Like Symmetrical Triangles that you should wait for a breakout to take a position, with Ascending Triangles you should wait for the resistance breakout to take a long position because not all the ascending triangles that form on the bullish markets work as the continuation patterns.
3. Descending Triangle Chart Pattern
Descending Triangles are known as the continuation chart patterns that form on bear markets or downtrends. They look exactly like Ascending Triangles, but just the direction is opposite:
Like the other kinds of triangles (symmetrical and ascending), with Descending Triangles we should also wait for the breakout before taking a position. We don’t enter the markets just because it is said that Descending Triangles are continuations patterns on bull markets and the downtrend will be continued after a Descending Triangle is formed. We should wait for Descending Triangle’s support line to be broken first. Then we can go short.
The below chart shows an example of a Descending Triangle. As you see, the same techniques and rules we learned when we were discussing the Symmetrical and Ascending triangles can be applied to the Descending Triangle Chart Pattern too. I trust you know the meaning of the lines I have plotted on the chart below because you read about them above where I’ve talked about Symmetrical and Ascending Triangles:
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