Dennis Y.Wed, Nov 24, 2021 1:15 PM
Triangle Chart Pattern Full Guide: Symmetrical, Ascending, Descending
Traders use a variety of different patterns to simplify or accelerate their perception of the current market situation. Although the technical analysis doesn't reflect the full picture of how the price of cryptocurrencies behaves, traders identified a set of patterns helping in market analysis.
In this review, we will look at the popular and evident formation, known as Triangle Chart Pattern. Let's find out, which are its types and how to utilize them.
What is a Triangle Pattern
It is a graphical setup composed of several candles encased inside a converging lower (support) line and upper (resistance) line.
A triangle is an indeterminate model, which in some cases means a market reversal and sometimes a sequence of a trend.
We should also keep in mind that a breakout of the upper/lower limit can be false if the price rebounds soon to the previous zones.
The triangle setup allows you to track the strength ratio "buyers vs. sellers". Keep in mind that the Triangle pattern can be misunderstood with another similar model, the Wedge.
How Can Triangle Chart Pattern Be Useful in Trading Schemes?
Patterns like these help objectively verify market trends and possible price breakouts. Triangles show entry points near breakout levels.
There are 3 types of these formations:
- Symmetrical Chart Pattern
- Ascending Chart Pattern
- Descending Chart Patter
From left to right: Symmetrical Chart Pattern, Ascending Chart Pattern, Descending Chart Pattern
Symmetrical Triangle Chart Pattern
In this case, the price "wavers" within the zone that was set by two converging trend lines: upward (support) and downward (resistance). This kind of triangle most usually leads to a trend resumption.
The pattern can be considered finished after the price break out of the lines with significant impulse. The movement direction of the breakout indicates the course of further price movement.
At the same time, a symmetrical triangle setup is the most ambiguous one, as compared to the other 2 types (see below). A symmetrical triangle is a leader by the percentage of failed price breakouts (about 30% of all situations).
Let's look at the example of a THETA coin. It looks like Symmetrical Chart Pattern.
As you can see in the figure, there was a fake triangle breakout with a sharp rebound in early September (the entire market drop on September 7, 2021).
In practice, perfect triangle patterns are rare. Therefore, a small exit beyond the support line on September 28 and 29 can be considered as a norm. It is also more proper to draw a line along the body of the candle, cutting off the studs.
Most of the movement inside the pattern has already passed by the price, so it should be traded with caution.
Ascending Triangle Chart Pattern
The chart below shows an ascending triangle. We can see that the upper edge is horizontal, which is its main difference. The lower limit is the uptrend line. In contrast to a symmetrical triangle, which is neutral and almost always restoration of a trend, an upward triangle is a bullish configuration in the vast majority of situations.
A triangle like this is built more regularly as a restoration of the trend. The pattern finishes with a breakout of the upper line, and it may show a significant exit beyond its border and a sharp increase in trading volumes - these points will be a buy signal.
Further, the broken level turns into support and does not allow the price to return to the inside of the triangle. Less frequently, but it also happens when this triangle is formed in a downtrend, this is a reason to think about a trend reversal, the first confirmation of which will be a breakdown of the upper (horizontal) line of the pattern.
Descending Triangle Chart Pattern
It is also similar to an upward triangle, only vice versa. The flat line here is the bottom line (support) and the top line is the downtrend line (resistance).
Like the ascending triangle, the descending triangle is not always a continuation trajectory, and frequently it takes the price downward (and it breaks the bottom line). It turns from support to resistance when the bottom line breaks through.
How to Use Triangle Patterns in Practice?
Often traders limit their risks and try to trade in the "body" of the triangle area, without catching the price above the resistance edge.
How to define the entry point for a particular trade? Once the price has broken through the limiting line and proceeds to move, we will be able to open a trade. There is a certain possibility of profit if we see the price rebound from the beaten trend line. It is also possible to open a position if the price has updated the local max/min price point of the triangle.
Also, after breaking the line, the price frequently retests the upper side of the pattern (or even below it).
It is commonly accepted, that breakout is better to take place in the first 2/3 of the configuration. If it has occurred in the remaining third of the shape, you should be careful, because false breakouts often occur in this segment.
Besides, the next breakout will be much more significant after the unsuccessful first one.
Don't risk higher than 2% of your funds when trading on a triangle setup breakout. Your plan should be weighed and considered. Often, a stop-loss order is set under/above the opposite edge.
Important Things You Should Know About Patterns
This method can be considered as an addition to the overall trading analysis, but not as an independent tool, because of the probability of mistake.
The main disadvantage of these analytical models is that they do not take into account the fundamental factors, so they cannot 100% display real market situation. But they can be suitable as an additional instrument for revealing short-term patterns, which can't be revealed on the basis of fundamental indicators.
Another important thing traders need to know - the figures can trigger more or less effectively depending on market conditions. This is influenced by several factors:
- Price volatility
- Selected timeframe (the smaller the timeframe, the worse the situation is perceived)
- General crypto market trends
Key Takeaways on Triangle Pattern Trading:
- Be sure to determine the trend direction preceding the consolidation period
- Evaluate the degree of inclination of the upper and lower trend lines to determine the type of triangle.
- Use triangle base height to predict the target level of possible take-profit orders.
- Always keep a risk management strategy in mind to reduce the risk of a false breakout and ensure that you maintain a positive risk/reward ratio.
The real significance of the triangle graphical models lies in their ability to help you with a fairly indicative guidance point. Remember about the risks, it's crucial!
Is a triangle pattern bullish?
Triangles can be broken out in two directions. Often, the descending chart pattern may be broken out downwards and the ascending chart pattern may be broken upwards. Symmetrical chart pattern one may carry on with the preceding trend. But in trading, the patterns often break scenarios. Watch which line the price consolidates near.
Are triangles bullish or bearish?
It depends on the trend. The triangle is a figure of uncertainty. Therefore, it can both reverse the trend and continue it. It can also break the trend sharply or not at all.
What are the types of triangles?
You can find 3 kinds of these configurations: Symmetrical Chart Pattern, Ascending Chart Pattern, Descending Chart Pattern
How do you find the pattern of a triangle?
It depends on the angle of slope of the trend lines and the current movement of the price.
How do you read a triangle chart?
At first, you should get, in what direction and how proportional is the narrowing of the scope of price fluctuations. Also pay attention to the quantity of meeting the shape limits (the more crossings, the higher chance of these limits will be sharply broken soon).
How do you identify a triangle breakout?
At about 2/3 of the duration of the entire triangle, each touch of the border of this pattern could indicate a possible breakout. Look at price behavior: whether it reverses after touching, or whether it goes away the broken shape. Also, remember that a try of breakout can be false (it's good to wait for the price to hold above the level on a larger timeframe).
How do you draw a triangle?
In order to correctly build a triangle chart configuration, you should draw a support (upper) trend line through 2 or more obvious price local minimums. Similarly, the resistance (lower) line should be drawn through 2 or more obvious price highs.