Ascending and Descending Triangles

To become successful in investing in Stocks, Forex, Futures, Options or whatever your interest may be, the basic knowledge and understanding of how to read charts, technical analysis and indicators will help you tremendously. There are other factors to consider regarding news, company performance etc. but if you grasp the fundamentals that can take you a long way.

Candlesticks are the most popular amongst the financial charts that are utilized. It’s a style of financial chart used to describe price movements of a security, derivative, or currency. Each candlestick typically represents one day depending on your style of trading. A phenomenal book to give you better clarity on how to understand candlesticks is Japanese Candlestick Charting Techniques by Steve Nison.

Once you understand how to read candlesticks, familiarizing yourself with a number of technical analysis will increase your winning percentage. Recognizing chart price patterns is an important aspect of technical analysis that traders should master. These patterns act like a highlighter on the charts showing a potential trade. The triangle patterns are one of my favorite price patterns because it is easy to recognize and it has a great risk to reward setup.

Ascending and Descending in the Forex market are the two types of triangle patterns we will explore today.

The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns. It is easily recognized by a rising trend line intersecting with a flat resistance line. It is often regarded by traders as a bullish pattern characterized by a breaking out above resistance when completed. However, in the ascending triangle pattern, breakouts can take place below resistance. This can especially be the case when the trend prior to the triangle was down. When trading off this triangle you would enter short on a break below the bottom of the pattern with a stop set at approximately 10 pips above the top of the high with a profit equal to the height of the pattern. However, if price rises above the resistance line, a stop would be placed below the highest low within the pattern with an additional cushion of 10 pips.

The descending triangle is characterized by an area of strong support intersecting a downward sloping trend line. When traders see this pattern as part of a larger downtrend, they look for a continuation of the downtrend. A close break and close below the area of support would be a confirmation of this pattern signaling to enter short with a stop above the top of the pattern.

The triangle pattern represents the forces of buyers unable to push price higher and sellers struggling to push price lower. Usually, the struggle is resolved with a breakout below support as presented in the examples shown.

In sum, triangle patterns are easy to spot, and provide good risk reward opportunities. Traders can quickly know that a big move may be near as well the profit objective and the amount to be put at risk. Now that you have the knowledge of the two powerful price patterns you are steps closer to becoming a confident trader.

"There is no holy grail, and there is no magical system. you have to win the battle within you first before you can win with the markets!"