Let’s review a simple and frequent model in technical analysis – “triangle” According to its usage this formed triangle model can be considered as a trading strategy, like the one that follows the trend, as well as U-turn strategy.
In graphic design consists of two lines: inclined resistance line and support level. As an example, let’s review 30-minute diagram of GBP USD currency pair.
The formation of descending triangle betokens price lowering. If this model appears during the ascending tendency in the short-term perspective the formation of the correctional price lowering is expected. If the triangle appeared during the descending tendency – it is a signal for further Call sells. For the complete descending triangle fulfilment, it is necessary to wait for support level breakout, which forms the lower base of the model.
The mirror reflection of descending triangle. Consists of two lines: inclined support line and resistance level. Sample of 30-minute diagram of EUR USD currency pair.
The formation of ascending triangle betokens price growth. If the model appears during the descending tendency, soon the correctional price growth is expected. If the triangle appears during the ascending tendency, it is a good signal for further bullish trend continuation. For complete ascending trend fulfilment, it is necessary to wait resistance level breakout, which forms the upper base of the model
Consists of two lines on the trading diagram (inclined resistance line and inclined support line) forming isosceles triangle with acute angle. Please note, that symmetric triangle unlike other types of this model occurs very often.
The main reason is that before the formation of the highly volatile movements, the consolidation moment occurs, when neither bulls nor bears know which direction the market is going to move. Very often, the symmetric triangles are formed before the appearance of important fundamental data. (Hourly diagram of USD JPY currency pair).
During the formation of the symmetric triangle, as a rule, there is the uncertainty on the market. In order to buy or sell with confidence, you should wait for the breakout of one of one of the faces of the triangle (inclined resistance line or inclined support line). Only after the breakout, you should trade according to the breakout direction. See the example of up/Put.
In the technical analysis, the triangle is rather popular. In most cases, the presence of this figure precedes the formation of highly volatile trend. That is why it is strongly recommended not to trade inside the triangle itself. The right decision is the breakout of one of the faces of the triangle with the further opening of the trade towards the breakout.