Being a successful trader involves having a thorough understanding of the market in which you are participating. One of the ways in which technical traders gain this understanding is through the identification and interpretation of chart patterns. Of the many chart patterns studied by traders, arguably none is more popular or widespread than the triangle pattern.
What is a Triangle Pattern in Technical Analysis? The Triangle Pattern is a popularly traded continuation chart pattern that is formed by two trend lines that get increasingly closer together as buyers and sellers battle back and forth. It is referred to as a continuation pattern because it develops during the price trend’s consolidation phase, and the price continues its original trajectory after the apex of the triangle is formed.
Most chartists, as technical analysts who study chart patterns are referred to, can identify the formation of a Triangle Pattern after about 28 trading sessions of pattern formation, with 90 trading sessions being the likely duration the triangle lasts before a new support or resistance level is formed. Hence, if you are trading on the daily time frame, it will take you 28 days to get early signs of a Triangle Pattern in development and the overall pattern will take around 90 days to complete. When trading the Triangle Pattern, chartists will look for increased trading volume as an indication that the pattern is likely to cease.
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Table of Contents
Types of Triangle Pattern
The Triangle Pattern is a horizontal continuation pattern in which buyers and sellers battle back and forth to reach a place where supply and demand intersect, forming the apex of the triangle.
It is referred to as “horizontal” because it forms a roughly 90-day holding pattern (when trading on the daily timeframe) in which the price of a security does not reach new highs or lows. Similarly, the pattern is referred to as “continuation” because of the expectation that once the triangle forms an apex, new demand levels will lead to a massive rush of buyers or sellers that will see the trend continue in the direction prior to the triangle’s formation.
There are three types of the Triangle Pattern that you need to understand for making informed trading decisions using this chart pattern. These variations are listed as follows –
- Symmetrical Triangle Pattern
- Ascending Triangle Pattern
- Descending Triangle Pattern
Each of these patterns works in roughly the same way, providing some great market entry and exit opportunities once the triangle is formed and volume increases.
Symmetrical Triangle Pattern
The Symmetrical Triangle Pattern forms from a largely indecisive market. This is truly a horizontal pattern, as buyers are hesitant to jump into the market, and sellers are reluctant to exit. Structurally, this variation of the Triangle Pattern comprises two symmetrical trendlines, marking support and resistance levels, that move towards each other until the apex of the triangle is formed. In this pattern, each low will be higher than the previous low and each high will be lower than the previous high, with the support and resistance level getting increasingly closer together.
During the development of the Symmetrical Triangle Pattern, the security trades at very low volumes, volleying back and forth within a narrow price range until the apex is formed. Once the apex is formed, however, there is the potential for a huge breakout, with trade volume increasing almost instantaneously. This breakout would likely be in the same direction in which the price moved before the triangle pattern started to form. Hence, if the security was trending up, there is likely to be a huge influx of buyers once the apex is formed, while a downward trending security will see a comparative rush of sellers.
Ascending Triangle Pattern
The Ascending Triangle Pattern is also referred to as a Bullish Triangle Pattern. This is formed when a security’s upward trending support level intersects with its flat resistance level.
During the 90-period-formation of this triangle, the pattern is characterized by repeated attempts to break through a given resistance level, with each attempt met with a retreat to the upward trending support level.
It is important to note that due to the nature of this upward trending support level, each low will be higher than the previous low, with the support and resistance level getting increasingly closer together. In this variation of the Triangle Pattern, once the support and the resistance levels intersect at the triangle’s apex, investors can expect a powerful bullish breakout resulting in an explosive growth that leads to a brand new resistance level.
Descending Triangle Pattern
The Descending Triangle Pattern is also referred to as a Bearish Triangle Pattern. This pattern occurs when a downward sloping resistance level intersects with a flat support level. Structurally, the Descending Triangle Pattern, in essence, is the mirror image of the Ascending Triangle Pattern.
During the formation of this triangle, the price cannot break through a support level and volleys back to a resistance level that gets increasingly lower.
While this descending triangle is being formed, the volume is low until the support and the resistance lines intersect at the apex. At the apex point, investors can expect a massive rush of sellers to come and establish a brand new, lower support level that continues the downward trend of the security’s price.
Identifying Triangle Pattern
While Triangle Patterns are extremely common when examining the ebb and flow of a security’s price, these can be difficult to identify if you don’t know what to look for. Fortunately, there are a few easy methods that you can use to determine if the pattern you are looking at, is in fact a Triangle Pattern.
The two methods to correctly identify and confirm the formation of a Triangle Pattern are as follows –
- Identifying Triangle Pattern Using Geometry and Shape Recognition
- Identifying Triangle Pattern Using Technical Indicators and Tools
For the best results, you should consider using both of the above-stated methods in conjunction with each other. In the following sub-sections, we will cover both these methods in some more detail so that you can start identifying and trading the Triangle Pattern in no time.
Identifying Triangle Pattern Using Geometry and Shape Recognition
As discussed earlier, the Triangle Pattern is formed from the intersection of two trendlines, particularly the trendlines that follow a security’s resistance and support levels.
When identifying a Triangle Pattern on the price chart of a security, what you need to look for there are three segments of this pattern. These three segments are –
- Resistance Trendline
- Support Trendline
- Triangle’s Height
Now, let us briefly discuss each of these three components, that together create this highly reliable chart pattern.
Resistance Trendline
Resistance can be defined as the price ceiling that a security does not surpass before pulling back. A trendline that connects a series of these resistance points is called the resistance trendline. You can trace the resistance trendline by simply connecting the upward-pointing tips of a security’s high prices using a trendline drawing charting tool. In the case of a Symmetrical and Descending Triangle Pattern, this resistance trendline is downward sloping, and it is nearly a straight line in the case of an Ascending Triangle Pattern.
Support Trendline
In technical analysis, support is defined as the price floor below which a security does want fall without rebounding and seeing a price increase. A trendline that connects a series of support points is defined as the support trendline. The construction of a support trendline is similar to that of a resistance trendline. To draw a support trendline, you simply need to connect the downward-pointing tips of a security’s low prices using a trendline drawing charting tool. By appearance, the support trendline is nearly a straight line in the case of a Descending Triangle Pattern, and it takes the shape of an upward sloping trendline in the case of a Symmetrical and Ascending Triangle Pattern.
Triangle’s Height
The third component that you need to look for in the construction of a Triangle Pattern is the height of the triangle. It is a straight line that extends from the support trendline to the resistance trendline at the onset of the pattern. In simplest terms, it is a vertical line that indicates the distance between the first support point and the first resistance point in the construction of the triangle. Height is essential for understanding how high or low the price may go once it breaks out at the end of the pattern, and it is generally measured in pips, which are simply the point in percentage change of the security’s initial correction.
Identifying Triangle Pattern Using Technical Indicators and Tools
Now that we have discussed various components of the Triangle Pattern, let us now take a brief look at several indicators and tools that you can leverage to confirm the construction of this pattern.
Listed below are several indicators and tools that provide reliable confirmation signals towards the construction of the Triangle Patterns. Using these confirmation signals, you can differentiate a true Triangle Pattern from other chart patterns that are similar in appearance to a Triangle Pattern.
- Low volume – During the development phase of the Triangle Pattern, the volume of trading declines sizably when compared to the during the prevailing trend. This happens because as this pattern forms, the buyers and sellers take a breath and reassess their position. You can easily track this decline in the trading volume using simple trading indicators such as ADX (Average Directional Index), and use it as an early confirmation signal for the Triangle Pattern.
- No extreme prices – For a true Triangle Pattern, the price of the security remains consistent within a well-defined resistance and support level. In identifying the Triangle Pattern, if you notice price violating the integrity of the resistance or the support trendline, it is possible that you have a different chart pattern in play.
- Narrowing peaks and valleys – Irrespective of what type of Triangle Pattern you are dealing with, the distance between high points and low points of the recent closing prices should always be on a decline. Therefore, in plotting the Triangle Pattern, if you see any increases in the distance between the recent highs and lows, it is an indication that the pattern in development is not a Triangle.
- Holding pattern – The Triangle Pattern represents a definite pause from a previous upward or downward trend. Therefore, if the pattern in development forms any new higher highs or lower lows, it negates the possibility for this pattern to be a Triangle.
Interpreting Triangle Pattern
Irrespective of the chart pattern that you pick, it always has a story to tell about the market’s current psychology. Plus, the story that each pattern tells is often different. Therefore, when interpreting Triangle Patterns, it is first critical that you understand which kind of triangle you are dealing with, as each type of triangle can reveal important distinctions about the market’s current psychology.
Now, without further ado, let us dive straight into the market psychology that each type of the Triangle Pattern reveals.
Interpreting Symmetrical Triangle Pattern
The Symmetrical Triangle Pattern reveals that the market is very unsure about what is going on. It is a true horizontal pattern in which very little volume of the security trades hands. Due to this low volume, there is little pressure to influence changes in price, with the trading range getting increasingly narrow with time.
While a Symmetrical Triangle may end with a breakout in either direction, there is strong evidence (some argue up to a 90 percent likelihood) that the trend of the security will continue in the direction it was moving prior to the Triangle Formation. In essence, the Symmetrical Triangle merely gives traders a chance to take a breath and let the dust settle while they assess their trading positions.
Interpreting Ascending Triangle Pattern
The Ascending Triangle reveals that bears (sellers) are being forced away from the market during the stabilization of a security’s price. The continually rising support leg of the triangle shows that buyers think highly of the security’s value. When the support leg eventually intersects the resistance leg, all bears are theoretically gone from the market, indicating that buyers are willing to pay new and higher premiums to acquire the security.
Interpreting Descending Triangle Pattern
The Descending Triangle reveals that bulls (buyers) are leaving the market as the price of the security stabilizes. With an ever declining resistance trendline, an intersection with the support level indicates that sellers will be willing to accept new low prices for security, given the lack of buyers left in the market to pay the higher amounts.
Improving Reliability of Triangle Pattern in Trading
There are plenty of traders who swear by the Triangle Pattern and place a lot of faith in it, citing the fact that its formation gives fundamental insight into market psychology. However, there are several market tools and indicators that can help investors improve the reliability of the Triangle Pattern even further when making trades.
Several tools in technical analysis that when used in combination with the Triangle Pattern, can significantly aid in boosting the pattern’s reliability in trading are as follows –
- Japanese Candlestick Patterns
- Elliott Wave Theory
- Momentum Indicators and Divergence
- Harmonic Patterns
- Other Chart Patterns
Now, without anymore wait, let us discuss how each of these indicators can help boost the reliability of the Triangle Pattern in empowering trading decisions.
Japanese Candlestick Patterns
Within the realm of technical analysis, Japanese Candlestick Patterns are very powerful tools in themselves, empowering millions of traders in making rational trading decisions. In addition to being this standalone trading tool, the Japanese Candlestick Patterns can provide a considerable boost to the reliability of trading signals produced by various chart patterns, including the Triangle Pattern.
In essence, when you can leverage Candlestick Patterns to boost the reliability of a Triangle Pattern in two ways. These are –
- Identifying Trend Reversal Zones: When trading the internal waves of a Triangle Pattern, you will need to identify and confirm price reversal zones. While the resistance and the support trendlines used in identifying these patterns can be powerful in identifying these potential reversal zones, but to make accurate trading decisions you would still need a tool to confirm the upcoming price reversals. This is where Reversal Candlestick Patterns can come into play and help improve the reliability of your trading decisions.
- Confirming Breakout Trades: Taking breakouts trades is one of the most popular strategies for trading the Triangle Pattern. In this strategy, however, false breakouts are a common issue and must be addressed. By entering a breakout trade without confirmation, you, in essence, would be exposing yourself to unnecessary risk. This is where the Continuation Candlestick Pattern can provide you that missing edge. By using Continuation Candlestick Patterns as a confirmation signal for breakout continuation, you can considerably boost the success probability of your breakout trades identified using the Triangle Pattern.
Elliott Wave Theory
Elliott Wave Theory is very powerful in predicting the future price movements of an asset. In essence, this theory identifies every movement on the price chart as part of a broader wave pattern and therefore provides traders with a way to rationalize and to predict all price movements.
While there are many ways in which you can incorporate Elliott Wave Principles into your pattern trading strategy, this theory in particular will prove very powerful when you are trading the internal waves of a Triangle. This is because this theory provides insights into the internal wave structure of a Triangle, thereby guiding you on what to expect as the pattern develops further.
According to the Elliott Wave Theory, a Triangle comprises five price waves and each of these five waves is composed of three interval waves. When trading the internal structure of the Triangle Pattern, formulating your trading strategy around this internal wave structure will considerably aid in boosting the accuracy of the trades that you identify using this pattern.
Moving Average, Momentum Indicators and Divergence
A great way to make the most accurate interpretation of the Triangle Pattern is to combine it with Moving Average lines and a Momentum Indicator on the price chart of the security that you are trading.
Moving Average lines are great at providing insights into the overall sentiment of the market. If the price of the security falls above the Moving Average line, it means that the sentiment in the market is positive or bullish for the security being traded. Similarly, when the price falls below the Moving Average line, it represents a negative or bearish sentiment for the security. Additionally, evidence suggests that longer period moving averages, such as a 200 period SMA or EMA, can serve as great dynamic support and resistance levels in trading various chart patterns such as the Triangle.
Furthermore, moving average based Momentum Indicators such as MACD can help you measure Divergence that represents the strength or the weakness of a trend. With divergence, you can significantly boost the success probability of your reversal signals when trading the Triangle, and thereby improve the pattern’s overall reliability in trading.
Harmonic Patterns
In technical analysis, Harmonic Patterns are a great way to forecast the direction and the magnitude and an asset’s future price waves. Thus, when trading Harmonic Patterns in silo, you already have a sense of direction and the level up to which the price is expected to move in the near term. With Triangles being a continuation pattern, you can very easily leverage these directional insights from Harmonic Patterns and incorporate them as part of Triangle trading strategy, thereby attaining a considerable boost in the accuracy of your overall trades.
Examples of several popular Harmonic Patterns that are known to work well with the Triangle Pattern include the Gartley Pattern, the Bat Pattern, the Crab Pattern, and the Shark Pattern.
Other Chart Patterns
It is also essential to look for other patterns within the same chart, such as the Wedges and the Pennants, as these often look similar to and share some characteristics with the Triangle Patterns, but may reveal slightly different information. When trading a Triangle Pattern, negating the possibility that the pattern that you are looking at is not a Pennant or a Wedge can give a more exact projection on the security’s future price movement.
Trading Triangle Pattern
Identifying and interpreting the Triangle Pattern is great, but they only have significance if you can leverage them in making profitable trade decisions.
In the following sections, we will cover a few popular strategies that investors use for trading these patterns. The two popular and reliable strategies to trade the Triangle Pattern are as follows –
- Triangle Pattern Breakout Trading Strategy
- Triangle Pattern Scalp Trading Strategy
Now, without any further delays, let us discuss both these strategies for trading the Triangle Patterns.
Trading Strategy 1: Triangle Pattern Breakout Strategy
It would be almost impossible to try and exclude the Triangle Patterns from your Breakout Trading Strategy, as the very nature of Triangles is to help investors identify moments where a breakout is imminent. When combined with a reliable complementary indicator, such as MACD, traders can predict breakouts with surprising accuracy and minimal risk using the Triangle Pattern.
There are four steps involved in taking breakout trades using the Triangle Pattern. These are –
- Identifying Tradable Wave
- Determining Trade Entry
- Determining Stop Loss Level
- Determining Take Profit Level
Now, without further ado, let us discuss each of these four steps in a bit more detail.
Identifying Tradable Wave
In the Breakout Trading Strategy, your goal is to capture the price movement that comes after the completion of the Triangle Pattern.
- In the case of an Ascending Triangle, this tradable portion occurs when the security makes the final upswing near the apex of the triangle, approaching the resistance trend line and eventually breaking past it.
- With a Descending Triangle, you look for this tradable wave when the security makes the final downward swing near the apex of the triangle, approaching the support line of the Triangle and eventually breaking through it.
- When trading a Symmetrical Triangle, similar to the Ascending and Descending Triangle, you look for this tradable wave near the apex of the pattern. Even though with Symmetrical Triangle Patterns, the breakout can occur in either direction, in more than 90% cases it occurs in the direction of the trend that was prevalent before the Triangle formation.
Breakouts are characterized by a sudden surge in trading volume. Hence, you can leverage volume indicators, such as ADX (Average Directional Index), in identifying breakouts from the pattern.
Determining Trade Entry
It is fairly easy to identify a trade entry using the Breakout Trading Strategy. With this strategy, you essentially wait for the price to break out of the Triangle Structure, and once that happens, you take a trade in the direction of the breakout post-confirmation.
- With an Ascending Triangle, you would look for a bullish trade once the price breaks and closes outside the resistance trendline.
- In the case of a Descending Triangle, you would look for a bearish trade once the price has violated the integrity of the support trendline and closes past it.
- Similarly, when trading a Symmetrical Triangle, you would look for a trading opportunity in the direction of the previous trend (the one that existed before the development of the Triangle Pattern), after the price has broken the support or the resistance trendline.
Before entering trades using this strategy, it is extremely important that you wait for a confirmation signal. A variety of different complementary methods can be employed for getting these confirmations. Few examples of these methods include – Divergence, Candlestick Continuation Patterns, etc.
Determining Stop Loss Target
As with any other chart pattern, false breakouts are not uncommon with the Triangle Patterns. Therefore, it is extremely important that you put a stop loss in place to cut losses should the breakout that you plan to trade fails. Fortunately, it is easy to determine when a breakout is a false breakout.
- When trading an Ascending Triangle, you will consider a breakout as a false breakout, if the price falls below the resistance line, soon after breaking out of the Triangle structure. Hence, with this pattern, you would put your stop loss, just a few points below the resistance trendline.
- Similarly, with a Descending Triangle, you will put your stop loss a few points above the support trendline.
- For Symmetrical Triangles, when taking a bullish trade, your stop loss should be put a few points under the resistance trendline. Contrarily, in the case of a bearish trade using this pattern, you would put the stop loss for your trade a few points above the support trendline.
Determining Take Profit Target
With the Breakout Trading Strategy for the Triangle Pattern, the general rule of thumb for setting take profit targets that many technical traders follow leverages the height of the pattern. The core principle behind this rule is that you should exit a breakout trade once the price movement post-breakout equals the height of the Triangle. Therefore, for a triangle with a height of 100 pips, you should close your trade to book profits once the breakout reaches 100 pips above the former resistance trendline.
Due to its simplicity and objectivity, the above-stated rule will work great for most pattern traders. However, if you are one of the advanced traders and have a higher appetite for risk, to leverage the true potential of this pattern, you might want to leverage a more sophisticated strategy for setting take profit targets when trading breakouts using this pattern. Personally, I rely heavily on Fibonacci Extension Levels and Divergence to determine the exit strategy for my breakout trades.
Trading Strategy 2: Triangle Pattern Scalping Strategy
Scalping is a very popular trading strategy in which investors make frequent buys and sells to accrue earnings based on many trades that yield small gains. With this strategy, the key is to make so many modest gains that the total adds up to a substantial profit, with losses being minimized before they can accrue and spiral out of control, and thus erase or negate all those small victories.
There are two different approaches that you can take to scalp trade using the Triangle Pattern. These are –
- Trade on a relatively smaller time frame that allows you to identify a large number of Triangle Patterns on a wide variety of securities. Then, capturing gains from successful breakouts and limiting losses from incorrectly identified or false breakouts. Essentially, with this approach, you are still leveraging the breakout strategy but on a very small time frame.
- Trade the internal wave structure of the Triangle Pattern. In other words, with this approach, you look for trading opportunities within the internal structure of the Triangle Pattern, while the pattern is still under development.
Since we have already covered the Breakout Trading Strategy in the previous section, in the following sections we will exclusively focus on the second approach, in which we trade the pattern’s internal waves to scalp trade the Triangle Pattern.
Identifying Tradable Wave
Just as with any other chart pattern, not all internal waves of the Triangle Pattern are tradable. In fact, during the initial development phase of the pattern, it can be difficult to even hypothesise that the pattern in development is a Triangle.
Under Scalping Strategy, to identify the tradable waves of the Triangle Pattern, Elliott Wave Theory can be greatly leveraged. Listed below is a quick snippet on how Elliott Wave Theory defines the internal wave structure of the Triangle Pattern –
- The Triangle Pattern comprises a 5 price wave. For the ease of illustration, let us call these 5 waves as Wave-1, Wave-2, Wave-3, Wave-4, and Wave-5.
- Each of these 5 price waves that collectively comprise the Triangle Pattern, have an internal wave structure of 3 waves. Let us call these as Wave-A, Wave-B, and Wave-C.
Depending on your trading plan, you can trade any of the above described internal waves. However, to leverage the market insights from a potential Triangle in development, and to potentially improve the accuracy of your trades, I would recommend that you focus on trading just the last three price waves (i.e. Wave-3, Wave-4, and Wave-5) of the pattern. This is because the formation of the first two waves will bolster your hypothesis that what you have on the price chart is in fact a Triangle Pattern in development.
Determining Trade Entry
With the Scalping Trading Strategy, there are many different approaches that you can take to determine your trade entries. In principle, under this strategy, the Triangle Pattern provides you with insights into the potential reversal price zones, and you leverage these indications as confirmation signals for entering trades using some other trading method in technical analysis.
Listed below are a few examples of trading methods that can be leveraged in combination with the Triangle Pattern to Scalp trade a security.
- Candlestick Patterns: You can leverage both, Reversal Candlestick Patterns and Continuation Candlestick Patterns when scalp trading a Triangle. The reversal patterns will be used to identify the beginning of a new wave (such as – Wave-3, Wave-4, Wave-5) within the triangle structure, whereas, the continuation patterns will allow you to trade the sub-waves within these internal waves.
- Technical Indicators: Within technical analysis, there are many technical indicators that allow you to identify trade entries and exits. When used in combination with the Triangle Patterns, the accuracy of these indicators can increase multifold. Hence, you can use the signals from these indicators to scalp trade the Triangles. Examples of few technical indicators that you can leverage to scalp trade these patterns include – MACD, Donchian Channels, Bollinger Bands, etc.
- Other Chart Patterns: Similar to the Candlestick Patterns, you can use the Reversal Chart Patterns and the Continuation Chart Patterns to trade the internal waves of a Triangle.
Determining Stop Loss Target
With the Scalp Trading Strategy, depending on the method that you leverage to determine trade entries, your approach to determine the Stop Loss level can greatly vary.
However, due to the sheer number of trades that you will make under this strategy, it is important to keep your losses to the minimum. Hence, you should always use a tight Stop-Loss that does not exceed more than 0.5% from your buy-in price when scalping.
Additionally, in most scalp trading scenarios, switching to a trailing Stop Loss once your trade moves into the profit zone will also serve well to most traders.
Determining Take Profit Target
As a scalper, you don’t always have the luxury to wait for a breakout and for the price to reach pips that are equivalent to the triangle’s initial height. Hence, in most trading scenarios, you need to have less aggressive Take Profit targets when scalp trading and asset, and should book profits as frequently as you can.
As a general rule of thumb, you can consider booking profits when you have made roughly 0.5% profit. There may be some leeway to increase this with the Triangle Pattern though. This is because reversals are generally unlikely once a breakout occurs (assuming that you trade in the direction in which the Triangle Pattern is likely to breakout).
Advantages and Limitations of Trading Triangle Pattern
Just as with any other tool and indicator used in analyzing and assessing financial markets, there is guarantee to the future price performance of a security when analyzing it with the Triangle Pattern. The volatility and the uncertainty in the markets can be baffling even to the savviest of investors, irrespective of how polished are their trading methods. Trading the Triangle Pattern is no exception to this market uncertainty and comes with its own set of advantages and limitations.
Therefore, in this section, let us identify several key advantages and limitations of trading the Triangle Pattern. For optimum trading results, when incorporating the Triangle Pattern into your trading plan, you must keep a note of these pros and cons of trading the Triangle Pattern.
Advantages of Trading Triangle Pattern
Listed below are several key advantages of trading the Triangle Pattern –
- Triangle Patterns are easy to identify once the investor knows what to look for.
- These patterns commonly appear in all market and financial instrument types (for example – Stocks, Forex, Cryptocurrencies, etc.). Hence, irrespective of the market you are trading, you can incorporate the Triangle Patterns into your trading plan.
- Triangle Patterns almost always indicate that a breakout is imminent. With investors able to predict the direction of the breakout, huge profits can be amassed with minimal risk and surprisingly high success probability.
- The Triangle Pattern is an excellent pattern to combine with other indicators used in assessing the future price performance of a security. Combining Triangles with other trading tools, within and outside the realm of technical analysis, is relatively easy.
- If a breakout is correctly predicted, investors can see explosive gains in a relatively short period of time.
- The Triangle Pattern frequently has a higher upside than reversal patterns, as it predicts the break down of barriers that previously limited a security’s growth/fall potential
Limitations of Trading Triangle Pattern
Listed below are several key limitations of trading the Triangle Patterns –
- Triangles take a long time to develop and to become identifiable when compared with other chart patterns and indicators.
- The Triangle Pattern has some of the same characteristics that other patterns, such as Wedges and Pennants, have, making them difficult to identify for novice investors.
- When trading the Triangle Pattern, you essentially leverage the past price performance data to make an educated guess about what is to come in the future. And, as any trader would know, past performance does not guarantee the future outcome in capital markets.
- Mistakes can be costly, as buying in at a false breakout point can lead to a considerable downside, unlike trading reversal patterns, where you would be buying in at a relatively low risk price point.
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Conclusion
The Triangle Pattern in technical analysis is one of the most common and proven methods for predicting a price breakout on the price chart of a security. As a continuation pattern, it signals an extended horizontal pause in a security’s trading price, at the end of which investors can expect to see a continuation in the prevalent price trend.
There are three important types of the Triangle Pattern that include the Symmetrical Triangle Pattern, which represents a period of uncertainty for investors; the Ascending Triangle Pattern (also known as the Bullish Triangle Pattern), which sees bears systematically pushed out of a market; and the Descending Triangle Pattern (also known as the Bearish Triangle Pattern) that indicates that the buyers are leaving the market as new support prices are reached.
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