Triangle patterns and trading charts
What are triangle patterns?
Triangle patterns are popular technical chart patterns that traders use to predict potential price movements. They can be applied to all types of assets, from stocks and commodities to currencies and bonds.
Triangle patterns appear in three different variations (ascending, descending, and symmetrical) and can indicate the resumption of a current trend (uptrend/downtrend). Triangle patterns consist of an upper and a lower trendline, and a trading signal is triggered once the price breaks out of the pattern.
Are triangle patterns bullish or bearish?
Triangle patterns can be bullish or bearish, depending on the direction in which the price breakout is occurring.
- Bullish breakout: a breakout is considered a bullish signal when the price breaks above the upper trendline of the triangle. This suggests that the bulls have regained the upper hand and that we could see a continuation of the uptrend. Some traders use this signal to enter a long position, while others wait for additional confirmation before entering a position.
- Bearish breakout: a breakout is considered a bearish signal when the price breaks below the lower trendline of the triangle. This suggests that the bears are back in control and that we could see a continuation of the downtrend. In this case, traders could use the breakout as a signal to enter a short position in the instrument. Alternatively, they may wait for additional confirmation before committing to a position.
Types of triangle charts
There are 3 types of triangle patterns, which we will present below.
1. Ascending triangle
The ascending triangle is a bullish continuation pattern and consists of a rising lower trendline and a flat upper trendline (acting as resistance). A bullish signal is created once the price breaks out of the triangle and continues to move in the direction of the trend.
How to identify an ascending triangle?
Firstly, traders should identify the current trend of the instrument and ensure it is in an uptrend.
The ascending triangle´s main characteristics are a rising lower trendline, which suggests the price is being pushed higher, and a flat upper trendline, which indicates strong resistance.
The price will consolidate for a while within the triangle, and traders will wait for a breakout to the upside to confirm that the uptrend is resuming.
2. Descending triangle
The descending triangle is a bearish continuation pattern and consists of a declining upper trendline and a flat lower trendline (acting as support). A bearish signal is created once the price breaks below the flat lower trendline and continues to move in the direction of the trend.
How to identify a descending triangle?
When looking for a descending triangle, ensure that the instrument is in a downtrend.
The falling upper trendline, which indicates that the instrument is making lower highs, is a sign of a descending triangle. Meanwhile, the lower trendline is flat and acts as key level of support.
A breakout below this flat level could signal the continuation of the downtrend.
3. Symmetrical triangle
The symmetrical triangle is a neutral chart pattern. The price of the instrument is consolidating, and the converging trendlines are moving towards each other and getting narrower. The narrower they become, the higher the chance of a breakout.
We call the symmetrical triangle a neutral chart pattern because traders are not necessarily anticipating a breakout in a specific direction. The price is consolidating within a range, and traders will trade in whatever direction the breakout occurs.
That being said, when a symmetrical triangle appears during a strong uptrend, traders might be looking specifically for a breakout to the upside and ignore bearish signals as they do not wish to go against the trend. At the same time, they might ignore a breakout to the upside if the instrument is in a strong downtrend.
How to identify a symmetrical triangle?
As the name indicates, the pattern consists of two converging trendlines. The price action suggests that there is a battle going on between bulls and bears.
How to trade triangle chart patterns
When trading an ascending triangle pattern, traders should:
- Ensure the instrument is in an uptrend.
- Identify the ascending triangle, noticeable by its rising lower trendline and flat upper trendline.
- Confirm the pattern by waiting for the two lines to converge.
- Enter a long position once the price breaks above the resistance level (flat upper trendline). Additional tools can be used to validate the signal (such as technical indicators).
- Set a stop-loss level. Traders commonly place them below the flat upper trendline (former resistance, now support).
- Set a take-profit level. Some traders use classic support and resistance levels, while others measure the vertical height of the triangle pattern and project this from the breakout point upwards.
When trading a descending triangle pattern, traders should:
- Ensure the instrument is in a downtrend.
- Identify the ascending triangle, noticeable by its falling upper trendline and flat lower trendline.
- Confirm the pattern by waiting for the two lines to converge.
- Enter a short position once the price breaks below the support level (the flat lower trendline). Additional tools can be used to validate the signal (such as technical indicators).
- Set a stop-loss level. Traders commonly place them above the flat lower trendline (former support, now resistance).
- Set a take-profit level. Some traders use classic support and resistance levels, while others measure the vertical height of the triangle pattern and project this from the breakout point upwards.
When trading a symmetrical triangle pattern, traders should:
- Identify the symmetrical triangle pattern, consisting of two converging lines.
- Confirm the pattern by waiting for the two lines to converge.
- Enter a position in the direction of the breakout. Additional tools can be used to validate the signal (such as technical indicators).
- Place a stop-loss level, typically within the body of the triangle.
- Set a take-profit level. A measurement of the vertical height of the triangle pattern can help determine an optimal take-profit level.
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The images shown are for illustration purposes only. This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation and needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability with regard to the accuracy and completeness of the content in this publication. Readers should seek their own advice.
FAQ
What are triangle patterns?
Triangle patterns are chart patterns formed by converging trendlines on a price chart. They indicate a period of consolidation prior to a potential breakout that could lead to the resumption of the prevailing trend.
How to identify triangle patterns?
Triangle patterns are identified by drawing trendlines connecting the series of higher lows and lower highs. Once the lines converge, they form a triangular shape on the chart.
What are the types of triangle patterns?
The three main types of triangle patterns are symmetrical, ascending, and descending.
What is a symmetrical triangle pattern?
A symmetrical triangle pattern is a pattern formed by two converging trendlines with similar slopes. A potential breakout could occur in either direction.
What is an ascending triangle pattern?
An ascending triangle pattern is formed by a flat upper trendline and a rising lower trendline. A breakout is expected to occur above the upper trendline, making it a potentially bullish signal.
What is a descending triangle pattern?
A descending triangle pattern is formed by a flat lower trendline and a declining upper trendline. A breakout is expected to occur below the lower trendline, making it a potentially bearish signal.
Are triangle patterns always reliable?
No. As with every chart pattern, there can be false signals. Traders can use additional tools (such as technical indicators) to potentially make them more reliable.
How do you trade triangle patterns?
Traders often wait for a breakout above the upper trendline (bullish) or below the lower trendline (bearish) before entering trades. Stop-loss and take-profit levels are set to manage risk.
What is a measured move target in triangle patterns?
Traders use measured move targets to determine how far the price could move after the breakout based on the height of the triangle pattern.
Can triangle patterns be continuation patterns?
Yes, triangle patterns can signal a continuation of the existing trend.
Do traders rely solely on triangle patterns?
Traders often use technical indicators and/or additional chart patterns (such as classic support and resistance) to improve the reliability of the signals.
Can false breakouts occur in triangle patterns?
Yes, false breakouts can occur when the price briefly breaks out of the pattern but then reverses again. This is why traders use additional tools along with triangle patterns.
Are triangle patterns applicable to all time frames?
Yes, triangle patterns can be observed on various timeframes, from minutes to weekly charts.
