Triangle Formations In Forex Trading (Part I)
You should know and understand triangle formations. Triangle formations appear relatively common in price charts. Through triangle formations you can ride on a potentially high momentum move that is likely to occur after a period of decreasing volatility. Triangles are one of the best depictions of decreasing price volatility in the currency price charts.
All triangles show decreasing price volatility in action. When a particular type of triangle has been identified by the trader, a high probability trade is in sight when the technicals are coupled with the current market sentiment.
Triangles are basically continuation patterns. But they can also be reversal patterns. This depends on the different types of triangles and whether they occur in an uptrend or a downtrend. Triangles are also known as Wedges. There are basically three types of triangles: 1) Ascending, 2) Descending and 3) Symmetrical.
Ascending Triangle: It is basically a bullish signal when you see an ascending triangle on the chart. An ascending triangle can be easily identified by its upward sloping trendline. This upward sloping trendline creates the lower boundary of the ascending triangle. An ascending triangle can be either a continuation or reversal pattern.
The upper boundary is roughly horizontal and this horizontal line should connect at least two price points. The horizontal line represents the resistance level. What is the crowd psychology behind an ascending triangle? There are sellers in the market who push the price down every time the currency price goes up to the resistance level.
Similarly when the prices retreat from their high and are on the way down, there are buyers who believe very strongly that the currency price should rise based on their own reasons. They thus bid the prices higher than the previous low forming the upward slope of the triangle.
When these two lines, one sloping and the other horizontal converge at one point the triangle is formed. The appearance of an ascending triangle should prepare you for an upside breakout from the resistance. Breakouts tend to occur in the middle or the third of the triangle formation measuring from the start of the triangle to the tip.
The general guideline is this that when you see an ascending triangle during an uptrend, it is seen as an uptrend continuation pattern. But if it formed during an existing downtrend, it acts as a bullish reversal pattern.
Descending Triangles: Even though it can be a continuation or reversal pattern, a descending triangle is viewed as a bearish formation. A descending triangle and an ascending triangle are the opposite of each other.
A descending triangle can be identified by the downward slope of the trendline which is formed by connecting the lower price highs. This downward sloping trendline forms the upper boundary of the triangle. The horizontal lower boundary of the triangle represents the support level and it is formed by connecting at least two price points. - 23223
All triangles show decreasing price volatility in action. When a particular type of triangle has been identified by the trader, a high probability trade is in sight when the technicals are coupled with the current market sentiment.
Triangles are basically continuation patterns. But they can also be reversal patterns. This depends on the different types of triangles and whether they occur in an uptrend or a downtrend. Triangles are also known as Wedges. There are basically three types of triangles: 1) Ascending, 2) Descending and 3) Symmetrical.
Ascending Triangle: It is basically a bullish signal when you see an ascending triangle on the chart. An ascending triangle can be easily identified by its upward sloping trendline. This upward sloping trendline creates the lower boundary of the ascending triangle. An ascending triangle can be either a continuation or reversal pattern.
The upper boundary is roughly horizontal and this horizontal line should connect at least two price points. The horizontal line represents the resistance level. What is the crowd psychology behind an ascending triangle? There are sellers in the market who push the price down every time the currency price goes up to the resistance level.
Similarly when the prices retreat from their high and are on the way down, there are buyers who believe very strongly that the currency price should rise based on their own reasons. They thus bid the prices higher than the previous low forming the upward slope of the triangle.
When these two lines, one sloping and the other horizontal converge at one point the triangle is formed. The appearance of an ascending triangle should prepare you for an upside breakout from the resistance. Breakouts tend to occur in the middle or the third of the triangle formation measuring from the start of the triangle to the tip.
The general guideline is this that when you see an ascending triangle during an uptrend, it is seen as an uptrend continuation pattern. But if it formed during an existing downtrend, it acts as a bullish reversal pattern.
Descending Triangles: Even though it can be a continuation or reversal pattern, a descending triangle is viewed as a bearish formation. A descending triangle and an ascending triangle are the opposite of each other.
A descending triangle can be identified by the downward slope of the trendline which is formed by connecting the lower price highs. This downward sloping trendline forms the upper boundary of the triangle. The horizontal lower boundary of the triangle represents the support level and it is formed by connecting at least two price points. - 23223
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!
posted by X - Men @ 12:39 PM
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