Identifying triangle chart patterns is easy when a completetechnical analysis has been carried out. Locate 2 higherhighs and 2 lower lows. Next, draw a line through them.Join at least 2 lower lows with one line, and 2 higher highswith another line, and you’ll have a nice triangle chartpattern. You have just identified a trade-able chartpatterns most traded in forex trading.A minimum of four ‘bounces’ should be observed beforethis triangle formation can be considered a reliable patternto trade with.
Research by Thomas Bulkowski and many famoustechnicians indicate that price often breaks out of thesymmetrical triangle ahead of the price at which the 2trendlines converge, which is labelled the apex. From the point where the triangle begins, researchshows that most triangles break out of either the upper orlower trendline anywhere from the 66 percent and 75percent of the way to the apex, though some trianglesbreak out at the apex.
There is one major caveat to know whenworking with triangle chart patterns. In mosttechnical analysis books, it is found thatascending triangles are described as bullishcontinuation patterns and descending trianglesare described as bearish continuation patterns.From our experience, if you classify triangle chartpatterns as such, you are doing a disservice toyourself.
Ultimately, we should not try to predict whichdirection price will break from triangle chartpatterns. That’s not to say that ascendingtriangles cannot meet their upside breakouttargets or that descending triangles will not breakto the downside targets. They do.
However, when thinking of these trianglechart patterns in terms of risk/reward andedge, it’s best to treat them withoutdirectional bias and take advantage of theprinciple of range expansion following rangecontraction instead of the complexity of tryingto predict which direction price will break-out.
In fact, you will likely find that some of the best tradeswill come from triangle chart patterns that break opposite oftheir expected directional bias. This is because traders who think that ascending triangleswill -always break to the upside will be forced to sell theirforex contracts as they stop-out when the ascending trianglebreaks unexpectedly to the downside, and these tradersstoping out, when combined with sellers entering new short-sale positions as a result of the confirmed triangle chartpattern entry will create a positive feedback loop that propelsprice to achieve the unexpected downside target. Knowingthis is a major benefit when anticipating where or how toenter a potential triangle trade.
• As such, we should use trendline-break EA found on MT4 to draw not just a buy pending order on a ascending triangle chart pattern, but also sell a pending order on the chart pattern as well.• When breakout happens either to the upside or downside, the trader can participate on the breakout regardless of its direction. This process of placing buy and sell pending orders on triangle chart patterns can now be automated by commercialized software or robots.
In regard to where are best to enter trades in trianglechart patterns, we turn back to conservative versusaggressive tactics. An aggressive trader would put on a positionimmediately as price begins to break above the uppertrendline or beneath the lower trendline without waitingfor further confirmation signal. Conservative traders have a variety of entry strategies,including entering only as price breaks above a strongbullish breakout candle like a bullish engulfing or beneath astrong bearish candle.
Thanks to technology, there arecommercial robots programmed specially fortraders to trade triangle chart patterns onautomation. Whether the trader tradesaggressively or conservatively, entry based ontrendline-breakout or price breaks and closesbeyond trend line, each of these style oftrading can be personalized and programmedto work in the absence of the trader at thecomputer screen.
A time filter can be introduced to reduce thepossibility of false triangle break-outs outside thespecified trading time frame. Generally, mostgenuine breakouts happen during active Forextrading hours and 30 minutes after the openingbell of the market session.
Another way is to introduce indicatorslike ADX and to factor in the ADX values beforeconsidering whether to trade breakouts or tofade breakouts. Reducing the likelihood of thefalse breakout, I will like to see that the ADX isbelow 15 value for some time. And the longer it stays below 15, it will meanthat market is attempting and preparing for a bigmovement. It will be a very good opportunity totrade triangle chart patterns.
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