What Are Triangle Chart Patterns? Types Of Triangle Charts

When a Triangle chart pattern appears on your asset’s price chart, it’s likely to be noted and acted on by tens of thousands of traders around the globe. Triangles, which tend to form quite often, are popular because they provide vivid entry points for trades that anticipate a price breakout, and they boast a very solid track record in generating reliable trading signals. Triangles also lend themselves to the establishment of stop-loss orders, and they can suggest helpful price targets for the bull or bear runs that follow the pattern. Thus, you can get an idea of how far the respective animals will run before stopping for a rest.

As we’ll see, there are three different types of Triangle chart, each with its own unique nuances and implications. In general, though, Triangles indicate that traders are lacking clear conviction about which way prices should head. Neither the bulls nor the bears feel all that inspired in times like these. The characteristic triangle shape forms because price volatility becomes condensed in a smaller and smaller area, so that the upper and lower trendlines will meet in a point. Ultimately, the result will be that prices must break out in one of two directions: up or down.

Once they do so, we have reason to believe – though not to know for sure – that prices have opted to run on this new path, so we may open a deal in that same direction. This is on condition that we confirm, based on the testimony of other indicators, that the new trajectory of prices is valid. Before we explain further, however, it’s time to meet the Triangle family.

Types of tringle charts

1. The Ascending Triangle

On the left-hand side of the image, prices for this security start off with a pronounced uptrend, following this with a series of corrections that grow shorter and shorter as time goes by. The lower black trendline traces the course of the rising price lows. On the upside, rising prices are repeatedly thrown back at a particular resistance level, which is indicated by the upper black trendline. Since the lows keep getting higher, on the one hand, and the highs cannot break through that resistance, on the other, the result is for prices to be confined in the narrowing area approaching the Triangle’s point on the right-hand side.

Behind the scenes of the price action, it looks like traders entered the Triangle with strong bullish conviction and that, even in the space of the Triangle itself, buying pressure really overpowers the sellers’ influence. The only hindrance to a bullish stampede seems to be that problematic resistance level up top, where the sellers have drawn their line in the sand and keep repelling rising prices.

Prices can’t remain squeezed in that tiny area for much longer, so traders know to expect a breakout somewhere near the point of the Triangle. In this case, we see the breakout occurs to the upside, which means the bulls finally enjoy their time in the sun, stampeding beyond the resistance level. While this outcome is more frequent than a breakout to the bearish side, either option is actually possible. This is because it might end up being the case that the resistance level above is too tough for the bulls to breach. Nevertheless, this uncertainty presents no problem since you are not expected to be a prophet. Just wait and see which way prices break, and then open a deal in that direction. Place your stop-loss order just before the breakout, and look for prices to run out of steam when they add the amount signified by the Triangle’s full length (on the left-hand side of the image).

 

2. The Descending Triangle

In this scenario, dropping prices keep on hitting a wall down below, but the price highs grow smaller and smaller, making it the inverse situation to the Ascending Triangle. Here, the buyers appear to be progressively losing conviction, but the sellers are struggling to open a pathway for prices to fall below the support level. When this pattern occurs during a downtrend, it most often indicates prices will keep dropping, breaking out from the Triangle’s point on the right-hand side. Thus, once you see prices fall out of the Triangle and start reaching below, as in the picture on the bottom right, it’s time to open a “sell” deal on the security. Remember not to be too hasty, though: That support level could really be too strong for the bears to penetrate, in which case prices would break to the upside.

 

3. The Symmetrical Triangle Chart Pattern

In the case of the Symmetrical Triangle chart pattern, the price lows keep rising while the price highs keep falling, leaving us with two diagonal trendlines that meet centrally on the right-hand side. As to the question of which way prices are likely to break, we can’t take instruction from the price action within the triangle since it’s symmetrical. Neither the bulls nor the bears are demonstrating any particular dominance. We look, then, to the direction prices were going when they entered the pattern for this hint. In the chart pattern on the left-hand side, prices were rising as they entered the Triangle, so we would expect them to continue doing so on the breakout, as, in fact, we see they do. Prices in the right-hand image were falling before becoming confined in the Triangle, so the bearish outcome is more likely.

 

Using Volume Indicators with Triangles

If you were to take a look at trading volume before and during a Triangle patterns’ formation, you would probably find the following: Lots of trades were happening during the preceding bullish or bearish trend, but they petered out throughout the Triangle itself. The reason is that, when prices are being pushed in one clear direction, trading volume stays robust since traders are guided by clear conviction. Since, however, Triangle chart patterns trace the undoing of a trend – when prices grow less and less inclined to fluctuate at all – we expect volume to fall when they hold sway.

Before acting on your Triangle chart pattern, check that it’s accompanied by a decrease in trading volume, for this will confirm that traders are indeed ambivalent about what should come next. When prices break out, however, we’d like to see a good surge in volume to show that traders have developed new belief and are going to run with it. If you observe that trading volume behaves in this way in the space of your Triangle and near its point, you can be substantially more confident in its validity.

 

What Makes for a Reliable Triangle Chart Pattern?

Just like a good businessman is one with plenty of connections within the industry, so a good Triangle is one with plenty of other technical indicators backing it up. It is therefore wise to consult the RSI (relative strength index) to determine whether your security looks overbought or oversold near the Triangle’s point. Overbought conditions indicate a potential bear run on the horizon, and a bull run is suggested by oversold conditions. You should also call up the MACD (moving average convergence divergence) indicator to see what it tells you about changing trend momentum. It’s possible you could get an indication, for instance, that the bullish trend preceding your Ascending Triangle is actually due to reverse.

Try to get an idea of the sentiment guiding the market, too. Consider the news items that may influence traders’ sentiment towards your instrument. If you are trading in the EUR/USD currency pair, has the Federal Reserve just made an announcement about their monetary policy going ahead? Tighter policy would normally act bearishly on this pair, since its base currency is the euro and not the US dollar.

With respect to the reliability of the Triangle pattern itself, as it appears on your chart, it becomes more dependable the more times it touches your trendlines. The Descending Triangle chart pattern pictured above scores four touches on the trendlines – two above and two below. This suggests a fair degree of reliability, but scoring five or more touches would make traders even more confident in its signals.

Wrapping Things Up

When you see that prices break out from your Triangle chart pattern, try not to jump into your deal too quickly. Wait long enough to confirm prices have really decided on a new direction, and are not just fluctuating in anxiety. Even when you do wait patiently to observe this, don’t be surprised if you run into a false breakout because they’re quite common.

This means you’ll sometimes find that, after prices break out bullishly from your Ascending Triangle, they follow this by doing an about-turn and heading back downward with their tails between their legs. This doesn’t necessarily mean your Triangle is faulty, (though you should check it and redraw it a few times to make sure) because no pattern works 100% of the time. As with all the other chart patterns used in technical analysis, diligent practice is the key to learning how to employ Triangles effectively, and to smoothly integrating them into your strategy.