A triangle chart pattern depicts a conflict between bulls and bears by including price moving into a tighter and tighter range over time.
The triangle pattern is classified as a “continuation pattern,” which means that after the pattern is completed, the price is expected to continue in the trend direction it was traveling before the pattern occurred.
When a triangle pattern has at least five touches of support, resistance is regarded as forming.
For example, three touches of the support line and two of the resistance line. Alternatively, vice versa.
Triangle chart formations are classified into three varieties, similar to the three little pigs: symmetrical, ascending, and descending.
A symmetrical triangle is a chart formation in which the slope of the price highs and the slope of the price lows converge to form a triangle.
What’s happening is that the market is producing lower highs and higher lows during this formation.
This indicates that neither buyers nor sellers are pushing the price far enough to establish a definite trend.
If this were a war between buyers and sellers, it would end in a tie.
This is a sort of consolidation as well.
The figure above shows that neither buyers nor sellers were able to increase the price in their favor. When this occurs, we have lower highs and higher lows.
As these two slopes approach one other, it indicates that a breakout is imminent. We don’t know which way the market will break out, but we do know that it will most likely break out. One side of the market will eventually cave.
So, how can we profit from this?
We can put entry orders above the slope of the lower highs of the symmetrical triangle and below the slope of the higher lows.
We can just hitch a ride in whatever way the market moves because we already know the price will break out.
If we had put an entry order above the slope of the lower highs in this example, we would have been taken along for a wonderful ride up.
If you had put another entry order that was lower than the slope of the higher lows, you would cancel it as soon as the first order was hit.
An ascending triangle is a type of triangle chart pattern that develops when a resistance level is present and the slope of higher lows is steep.
During this period, there appears to be a level that buyers are unable to surpass. However, as indicated by higher lows, they are steadily pushing the price up.
The buyers may be seen gaining momentum in the chart above since they are making higher lows. They continue to exert pressure on that resistance level, and as a result, a breakthrough is unavoidable.
The question now is, “Where will it go?” Will buyers be able to break through that level, or will resistance be too strong?”
Many charting publications will advise you that the buyers will usually win this struggle and the price will break out past the resistance.
However, our experience has shown that this is not always the case.
Sometimes the level of resistance is too high, and there is simply not enough buying power to push it through.
The majority of the time, the price will rise. The point we’re trying to make is that you shouldn’t be consumed with the direction the price goes, but rather that you should be prepared for movement in ANY direction.
In this situation, an entry order would be placed above the resistance line and below the slope of the higher lows.
In this case, the buyers lost the struggle, and the price plummeted! The descent was nearly the same length as the height of the triangle structure.
We could have gotten some pips off that dive if we had positioned our short order below the bottom of the triangle.
As you may have guessed, descending triangles are the opposite of ascending triangles (we knew you were clever!).
The top line in descending triangle chart patterns is formed by a run of lower highs. The lower line is a support level that the price does not appear to be able to breach.
In the chart above, we can see that the price is steadily establishing lower highs, indicating that sellers are beginning to gain ground on purchasers.
Most of the time, and we do mean MOST of the time, the price will finally break through the support line and continue to decrease.
However, in certain circumstances, the support line will be too strong, causing the price to bounce off of it and move sharply upward.
The good news is that we are unconcerned with the price. We just know something is about to happen.
We would put entry orders above the upper line (lower highs) and below the support line in this situation.
In this instance, the price broke over the top of the triangular pattern.
Following the upward breakout, it surged higher by roughly the same vertical distance as the triangle’s height.
Placing an entry order above the top of the triangle with a target as high as the formation’s height would have resulted in substantial profits.