Triangular Chart Pattern in Technical Analysis Explained
By Stelian Olar, Updated on: Feb 07 2024.
Triangles, triangles, triangles.
If you look at stock charts long enough, you'll notice triangle patterns popping up frequently.
These patterns of triangles are some of the most common chart formations, signaling potential trend reversal and even trend continuation ahead. But not all types of triangles chart are created equal. Learning how to trade the different triangle chart patterns can take your trading game to the next level.
In this guide, you'll discover:
- The most important trading triangles to know like the symmetrical triangle, ascending triangle, and descending triangle.
- We'll explore how these powerful triangle formations are formed when price movements start consolidating.
- You'll also learn key trading strategies to profit from triangles whether they are bullish or bearish.
Trading doesn't have to be complicated if you know what chart patterns to look for. With the right know-how, you can make sense of all those lines and stock patterns triangle that may have seemed mysterious before.
So grab your favorite beverage and get ready to become a pro at triangle pattern trading!
The market mysteries are about to unfold.
What Is Triangle Chart Pattern
In technical analysis triangles are chart formations that occur when the range between higher highs and lower lows narrows. This causes the upper and lower trend lines to converge toward each other, forming a triangle shape on the chart as price moves become more compressed.
Within the triangular pattern, price action is contained between:
- An upper trend line (descending) that connects a series of lower highs,
- And a lower trend line (ascending) connecting a series of higher lows.
As these two trend lines converge, it signals that the price moves are compressing and volatility is decreasing as buyers and sellers struggle for control.
There are three primary types of triangles that tend to form in price charts - ascending descending and symmetrical.
Triangle pattern Forex are important to technical analysis because they often precede significant price moves. The compressed trading range building up inside the triangle chart represents growing energy. When prices finally break out of the triangle, this pent up energy is released and prices surge in the direction of the breakout.
This is why triangle formations are closely watched by technical traders and swing traders.
How To Trade Triangular Patterns
Once you spot a [triangle pattern] taking shape on the chart, how do you trade it? Here are some key tips:
- Identify the triangle types chart - ascending, descending or symmetrical. This provides clues on the likely breakout direction.
- Determine if it’s a bullish triangle or a bearish triangle pattern. Rising triangle chart pattern signal bullish continuations while a falling triangle is a bearish continuation pattern.
- Watch for breakouts above or below the upper trendline and lower trendlines.
- Increased trading volumes confirm the breakout.
- Set entry orders just above or below the resistance level or support level that breaks and use protective stop loss orders in case the breakout fails.
- Manage risk accordingly. More reliable triangles]allow for bigger position sizes. Be cautious trading low-quality patterns.
- Set profit targets based on the height of the triangle and expect breakouts to extend a similar distance.
With the right rules in place, the chart triangle can provide reliable trading opportunities. Always remember to use proper risk management on your trades as that helps maximize profits from these powerful chart formations.
How To Trade Symmetrical Triangle Pattern
The symmetrical triangle pattern is one of the most common consolidation formations. Here are some tips for trading the symmetry triangle pattern:
Look for Multiple Touches on Trendlines
Look for multiple touches along the converging upper and lower trendlines. The more tests of support and resistance, the more reliable the symmetrical triangle is.
Trade Breakouts in Either Direction
Symmetrical triangles breakout up or down with nearly equal frequency, so don't anticipate direction but instead trade breakouts in either direction. That’s why they are more common to show up in the middle of the trend acting as continuation patterns.
Increase Positions on Confirmed Breakouts
Increase positions on confirmed breakouts beyond the upper or lower trendline on expanding volume.
Set Initial Stop Loss Orders
Set initial stop loss orders just outside the opposite side of the triangle. For example, place stops below the lower trendline on upward breakouts.
Target a Move Equal to the Triangle's Width
Target a move equal to the widest distance across the symmetrical triangle chart pattern for the minimum breakout objective.
Manage Positions at Profit Targets
The most explosive moves occur right after breakouts. Manage positions as prices hit profit targets. Now get out there and put these triangle trading tactics to work!
How To Trade Ascending Triangle Pattern
The ascending triangle is a powerful bullish triangle chart pattern that forms through rising lows and flat resistance. This pattern reliably breaks out upward, so trading upside breakouts is the focus. View it as the reverse triangle chart pattern version of the descending triangle.
Identify the Ascending Triangle
To trade the ascending triangle, first identify the key pattern components - a series of higher lows along an rising uptrend line and flat resistance at the same level where highs peak. The more times support and resistance are tested, the more valid the pattern becomes.
Trade the Upside Breakout
Once the ascending triangle is identified, look to buy a break above resistance on expanding volume for trade confirmation. Initial protective stops should be placed just below the rising support trendline.
Set Targets and Manage Risk
The minimum target is equal to the vertical height of the ascending triangle, but extensions are common. Manage risk by trailing stops higher as the breakout continues and close out positions if prices fall back below the resistance level which should now act as support.
How To Trade Descending Triangle Pattern
The descending triangle chart pattern is a bearish triangle chart pattern that forms through a series of lower highs against a flat support level. This is typically a bearish continuation pattern. View it as the inverted triangle chart pattern version of the ascending triangle.
Identify the Descending Triangle
To trade the descending triangle, first identify the key components - a series of lower swing highs along a descending downtrend line and flat support where lows hold steady. More touches increase validity.
Trade the Downside Breakout
Once identified, look to take short positions on a breakdown below support, confirmed by increasing volume. Initial stops are placed above the descending downtrend line.
Set Targets and Manage Risk
The minimum target is the vertical height of the descending triangle. Manage trades by trailing stops lower as the breakdown extends and close out shorts if prices rally back above support turned resistance.
Other Patterns of Triangles
Beyond symmetrical, ascending, and descending triangles, there are a few other triangle varieties to know like the:
- Asymmetric triangle chart pattern
- Broadening triangle chart pattern
- Expanding triangle chart pattern
Asymmetric triangle chart pattern
The asymmetric triangle chart pattern is a triangle variety with one downward sloping trendline and one more steeply angled upward sloping trendline. The key aspects of this candlestick triangle chart pattern are:
- Converging trendlines like a symmetrical triangle.
- One more steeply angled trendline makes it asymmetrical.
- Tops and bottoms may be uneven.
- Continuation pattern so breakout direction is uncertain.
- Can signal indecision in the current trend.
- Trade breakouts in the direction of the steeper trendline.
- Use other indicators to confirm breakout direction.
The asymmetric triangle lacks reliability on its own but can still provide trading opportunities with proper confirmation so make sure to use caution trading this pattern and manage risk accordingly.
Broadening triangle chart pattern
The broadening triangle is a broadening formation with diverging upper and lower trendlines indicating increasing volatility. Key characteristics include:
- Instead of converging, the upper and lower trend lines are diverging (meaning they move away from each other)
- Volatility increases as the pattern matures.
- Broadening tops signal a potential reversal of an uptrend.
- Broadening bottoms indicate reversal of a downtrend.
- Trade in the direction of the eventual breakout.
- Can be tricky to trade due to whipsaws.
Volume, momentum oscillators, or chart pattern analysis can help determine breakout validity
Expanding triangle chart pattern
The expanding triangle is another broadening formation with diverging trend lines that may take longer to form than other triangles. Key characteristics include:
- Diverging upper and lower trendlines as volatility increases.
- Reversal pattern with breakouts against prevailing trend.
- Bottoms reverse downtrends while tops signal uptrend reversals.
- Trade breakouts in direction of new trend with confirmation.
- Use stops to manage risk on volatile breakouts.
Chart patterns triangles and wedges
Chart patterns triangles and wedges are often grouped together as they share some similarities. However, there are some key differences between these chart patterns:
- Wedges tend to be shorter patterns, forming over only a few days.
- The trendlines in a wedge slope either up or down, remaining parallel. Triangle trendlines converge.
- Prices are more compressed in wedges, often due to shorter timeframes.
- Wedges are continuation patterns, resolving in the direction of the overall trend.
- Triangles can act as reversals and continuations depending on the type.
So while wedges are often considered a variety of triangles, their shorter duration and consistent sloping trend lines set them apart.
Useful Tips for Trading Triangle Patterns
Triangle patterns can provide great trading opportunities but require know-how to trade them properly which is why I decided to share some advanced trading tricks to gain an edge with triangles.
Firstly, look for at least 3 touches of the upper and lower trendlines to identify reliable triangle chart formations and combine other technical indicators with triangles for higher probability setups and breakout confirmation.
You can also try to combine symmetrical triangles with Fibonacci retracements for suspected breakout points in advance but make sure to use the ATR trailing stop method by basing stop loss orders on average volatility below key supports inside the triangle chart pattern. The best triangle pattern trading setups happen when you apply multiple confluent factors around these subtle patterns of triangles so don’t be afraid to think outside the box.