When it comes to technical analysis or trading in general, even people who are not into trading immediately imagine patterns of technical analysis. In this article, we will look at the most popular and probably the most favorite pattern of all traders – the triangle.

What is a triangle pattern?

The triangle in trading is characterized by two narrowing trend lines. Within these trend lines, the price fluctuates from the top line to the bottom. The minimum requirement for each triangle is the presence of four reference points. To draw a trend line, as we remember, you always need two points. Thus, to draw two trend lines that are narrowing, you need each of them to pass through at least two points.

The triangle model is considered complete when the price goes beyond one of the limits, and the direction of the breakdown indicates a further trend.

What are the types of triangles?

In general, there are three types of triangles: symmetrical, ascending and descending.

Probably the most common type of triangle is symmetrical. In this case, the price fluctuates between two narrowing trend lines: upward and downward. Such a triangle often leads to a continuation of the trend. The pattern can be considered complete after the breakout of any of the limits, the direction of the breakout indicates the direction of further price movements.

The chart below shows an ascending triangle. You may notice that the top line of such a triangle is horizontal – this is its main difference. The lower limit is the upward trend line. In contrast to the symmetrical triangle, which is rather neutral and almost always serves as a continuation of the trend, the ascending triangle is a bullish pattern and in the vast majority of cases there is a breakout. Such a triangle is formed more often on an upward trend and serves as a continuation of the trend. The pattern ends with a breakout of the upper line.

The descending triangle, which is shown in the chart below, is a formation opposite to the ascending triangle. In this case, the horizontal bottom line, and the top is a downward trend line. In most cases, it is a bearish structure that breaks down.

How to properly trade a triangle pattern?

• According to the rules, you need to enter the position immediately after punching one of the sides of the triangle in the direction of the breakout. Also a good entry point can be a retest of a broken line as a support or resistance, depending on the side of the breakout.
• How to set the stop loss correctly? Most traders place their stop loss order on the figure, but there are other variations: for the local minimum, for the level or mathematical stop loss, given the average dynamics of asset volatility.
• Take profit is set on the width of the triangle, from the breakout point.

Summary

Triangle is one of the main patterns of trading. With the rules and examples presented above, you can already find similar formations on the charts, and start your first attempts at trading. In the following articles, we will consider other patterns, such as: wedge, head and shoulders, double bottom, top, etc. These will help you understand the basics of technical analysis, and build your trading system.