Charts hold a lot of hidden information, and if analyzed properly, they tell you a lot about ongoing trends and the possible future price direction of the security.
In this article, we will discuss one of the common yet very powerful chart patterns, Triangle Patterns. Learning about them helps a lot to identify the direction of the market in the near term and place trades accordingly.
- Triangle patterns are easy to spot and are a type of continuation chart pattern.
- The symmetrical pattern is a type of consolidation pattern, and the price can move in any direction after the breakout.
- The ascending triangle pattern is a bullish pattern; it indicates a continuation of the uptrend following the breakout.
- The descending triangle pattern is a bearish pattern and following the breakout, the price moves down.
What’s a Triangle Chart Pattern?
Triangle chart patterns are a common yet useful way to visually depict how bulls and bears are fighting to take control of the market. They are a kind of continuation chart pattern, which means that after it completes, the asset’s price will follow the trend it was following before the pattern appeared.
A triangle chart pattern usually involves the price moving in a tight range. As time goes by, the support and resistance line eventually closes the gap between the two ends of the range. The triangle pattern is confirmed only when it touches the support and resistance lines together in at least five places. For example, it may touch the support line three times and the resistance line twice or vice versa.
Types of Triangle Patterns
There are three types of triangle chart patterns that can be observed. They are:
- The Symmetrical Triangle Pattern;
- The Ascending Triangle Pattern; and
- The Descending Triangle Pattern.
Now let’s make sense of each of them individually.
Symmetrical triangle pattern
A symmetrical triangle pattern is formed when the asset’s price is confined within a sideways range, but as time goes by, the up and down moves are not as high or low as the previous high and low ones. Within the pattern, it simultaneously forms series of higher lows and lower highs.
The price trend signifies that both bears and bulls are struggling to get a hold of the market and are failing to establish a clear trend. It is a type of consolidation.
When the price range narrows further, it means that the breakout is near, and eventually, either the bull or bear will give in. Therefore, if the breakout is above the upper slope or the resistance line, one can place a buy order to ride the trend. Similarly, in the event of a breach of the support line, it will pull the market down.
In the chart above, we can see the formation of a bearish symmetrical triangle and how the price of Ripple’s XRP has cracked after breaking below the support line.
Ascending triangle pattern
An ascending triangle pattern is formed by rising swing lows (higher lows), forming an uptrend line as a support line. While, swing highs reach a similar price level, forming a horizontal line as a resistance line.
The ascending triangle pattern indicates a presence of bullish strength but is facing difficulty with crossing above a specific resistance level. However, with each price drop, buyers have now started to push the prices higher, eventually closing the gap between the support and resistance lines. Therefore, when the breakout is bound to happen, buyers successfully send the price higher past the resistance level.
In the chart above, we can see the formation of an ascending triangle pattern. However, you should note, despite a bullish pattern, at times, resistance becomes too strong for the buyers to push the price higher, And, in absence of strength, the price breaks down.
Descending triangle pattern
A descending triangle pattern is an exact opposite of an ascending triangle pattern. It is formed when the asset’s price makes a series of lower highs, forming a downtrend line as a resistance level, while falling only to a similar price level, forming a horizontal line as support.
With a gradual lower highs formation, it indicates, sellers are gaining strength in the market against the buyers, and eventually closing the gap between the resistance and support lines. Therefore, when price breaches the support line, sellers successfully push the price down.
In the chart above, we can see the formation of a descending triangle pattern, and it is making lower highs, failing to break above its previous highs. Eventually, due to the absence of buyers, sellers hammered down the price of Binance’s BNB token.
How To Avoid False Breakouts in Triangle Chart Patterns
A false breakout is quite normal in the market and is one of the trader’s biggest enemies. A false breakout happens when the asset’s price moves in the opposite direction of the expected lines.
To reduce the risk of trading loss from false breakouts in triangle patterns, always initiate a trade when the asset’s price breaks above resistance levels or breaches the support line with strong volume. It’s the first confirmation of a price breakout.
Also, the price should move up or down, as shown in the example graphs, after the breakout happens. If the price reverses after the breakout comes within the resistance or support line, it is a false breakout and no clear trend may emerge in the near future.
Knowing how to read triangle patterns is a very important skill that could serve as brownie points to help you increase your success rate in the market. However, you should remember that while they are common and easy to spot, they don’t occur every day.
With triangle patterns, always place stop-loss orders to reduce the risk of loss. If you are a beginner, it’s better to start with paper trading to check efficiency before putting in your money.
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Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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