Knowing how to spot various forex triangle patterns that form in a forex trading chart is essential to making money. Triangle pattern trading is one of the most common strategies that traders use. Firstly, we will identify what a triangle pattern is. Most traders and analysts consider a triangle pattern when the shape appears and has a collection of support and resistance levels. The general rule of thumb is that you can formally identify the triangle formation once it hits five of these points.
So, analysts and traders would consider three resistance level points and two support level points enough to constitute a forex triangle pattern. It can work in the opposite direction too. A triangle pattern shows the battlefield between traders looking to make money from market drops and those looking to benefit from rises in specific currency pairing markets.
One of the key indicators and characteristics of a forex triangle pattern is that it signifies the market will likely head in the direction the triangle is formed. There are three types of triangle chart formations that occur. A symmetrical triangle, a descending triangle and an ascending triangle.
We will explore these with you today, so you know what to look for moving forward. We will also explain some of the formations to look out for and how to trade them accordingly. Some of the more specific terms to look out for today are bullish triangle pattern, bullish descending triangle, symmetrical wedge pattern, ascending triangle reversal, falling triangle pattern, descending flag pattern and descending triangle breakout.
As you can see, the amount of forex triangle patterns is vast. Triangle chart patterns are one of the most common shapes that can form on any chart. It isn’t just specific to forex trading, either. However, today we will be focusing solely on forex triangles.
Symmetrical Triangle Pattern
A symmetrical triangle pattern shows that a price is consolidating, unlike the other two triangle patterns we will discuss today, which indicate a more volatile price movement. The market is becoming less volatile as the lows diminish and the highs contract.
The price comes to a point (the top of the triangle), indicating a price breakout. This indicates either a bullish or descending flag pattern, such as an ascending triangle reversal. Despite the chart below being a BTC/US chart, forex charts look identical to this pattern.
So How Do I Trade When I See This Formation?
One of the most effective ways traders use when they identify this formation taking shape is to set buy orders just above the highest point of the triangle point or a short position at the lowest point of the triangle point.
This is effective because it will execute the order at the optimal point when the triangle eventually breaks out. Potentially, the trader stands to make money.
Once this positive trend is established, the trade set up to cover it can be cancelled, and vice versa. This is in a number of different financial assets, not just forex. Most successful traders will use automated software to remove any emotion from their trading. This ensures they enter and exit the market based primarily on the data.
Ascending Triangle Pattern
A forex ascending triangle works like a stock ascending triangle or a cryptocurrency ascending triangle. This is one of two probabilities following a period of price consolidation. An ascending triangle pattern indicates that the asset is moving positively but could also be hitting a price ceiling. This is also known as a rising triangle pattern by some analysts and traders.
Some traders see this as a bullish triangle pattern, and some do not. It is always best to air on the side of caution trading a forex triangle pattern as the markets can react to all sorts of different things. This, in turn, can cause it to break out in various directions. Whilst it is true that this sort of action can indicate a price explosion when it comes to an ascending triangle, forex can be an enigmatic market, so prepare for all eventualities. See an example of an ascending triangle pattern below.
Some traders see this ascending triangle pattern as a potential double bottom and will look to trade on that basis instead. Just because it is ascending does not mean it isn’t a bearish triangle to some traders. Establishing all the market conditions and behaviour before executing your trade is best.
How To Trade An Ascending Triangle Pattern
An ascending triangle is one of the most pivotal things to identify when it comes to triangle trading patterns. The initial thing to look out for is the triangle continuing from the current trend upwards. A period of consolidation will generally shape the ascending triangle more often than not. You can manage this risk more effectively by stopping at the recent price low.
You can look to take the vertical distance at the start of the shape and calculate the profit level when the ascending pattern begins to emerge. When it comes to this type of trading, you must understand the shape is forming on the graph and not misinterpret it. While the market can theoretically move in any direction, these movements generally indicate market sentiment.
Trading triangle patterns can be tricky, much like any strategy with a weighted emphasis on chart analysis. Triangle patterns forex trading can throw up a host of eventualities too.
Large institutional traders such as hedge funds and investment banks will generally try to follow chart triangles and chart triangle pattern trends as they eat up more of the market risk than a standard individual trader.
It is crucial to be flexible and adapt your strategy accordingly. For instance, if you identify bullish triangle patterns forming on a chart that measures the strength of the GBP (Great British Pound) against the US Dollar.
However, let’s say theoretically that the Prime Minister resigns. Or a more realistic and suitable example would be the Chancellor announcing a mini-budget that weakens the currency significantly. This occurred in September 2022 and immediately reflect on the market. This budget has since been reversed.
Another example would be the news following the Brexit referendum in 2016. Keeping a focus on the patterns that form on a chart is crucial. It is also pivotal that you take stock of any emerging news stories. This includes any big upcoming events within the next few weeks. An effective trading strategy encompasses a multitude of different factors. Adapting and being lucid in this ever-evolving space means you stand a fighting chance of making decent profits.
You must also keep yourself focused and stick to your initial trading strategy. This can be detrimental if you begin to second-guess yourself and allow emotions to creep in.
Including it in a trading strategy that implements risk management such as stopping loss and taking profit measures is vital. These tools are designed to help you.
Descending Triangle Pattern
This is the third and final identifiable feature of forex triangle pattern trading. Of course, there are more terms we will explore. However, these are the only three you need to apply to your memory. Every other chart triangle pattern, strategy or formation will fall under the umbrella of one of these three patterns. A descending triangle pattern works in the opposite way to an ascending triangle pattern.
The key differentials to look out for are a flat lower trendline and an upper trendline that is moving downwards. A descending triangle pattern means sellers outweigh buyers in the market, usually reflected in the currency pair’s price.
Once you can identify how to manage the risk by setting up an auto sell or buy on the opposite end, you put yourself at an advantage. Especially over other beginner traders who have not grasped the concept of triangles chart.
Descending Triangle Trading Strategy
As we explained in the main section, because a descending triangle indicates that more people are selling than buying, the price will continue to drop gradually. If the trendline breaks in a downward direction and the forex triangle reflects this, you could look to open up a short position.
When taking profit from this type of trade, it is important to identify the vertical point where the shape emerges correctly.
Short positions are riskier than just a standard buying and selling of a particular currency. Forex triangle patterns can form anytime because the market is a 24/7 exchange. This throws up positives and negatives, of course. Still, if you implement an effective strategy and use the best risk management tools available, you will be at an advantage.
Triangle forex trading is one of the few strategies you can install into your trading psychology that will benefit you in the long run. The main reason is that it can take a meticulous chart analysis to ensure you understand the market’s direction.
It will take time, patience, and practice. Still, once you have grasped the concept of triangle pattern forex trading, you will be able to understand the underlying concept of chart analysis. A lot of shape pattern trading originates from correctly identifying forex triangle patterns on a chart.
The forex market has trillions of dollars worth of liquidity and hundreds of billions of dollars traded on exchanges daily. There are no issues with executing trades at your chosen level. Start to use your experience to your advantage and pick up the tools required to become a successful forex trader in 2023. You will be able to hone your trading knowledge and start to benefit handsomely from the market positions you identify, such as ones that organically form, such as forex triangle patterns, and then execute correctly.