Free trading newsletter
Triangle patterns are among the most popular trading patterns in technical analysis. In particular the ascending triangle and the descending triangle are frequently traded. The strategy can be used for all instruments and all time frames.
Triangles are a break-out pattern. Traders wait until the break-out occurs. Depending on their personal preference traders either take a position when the break-out occurs in the direction of the trend or when the break-out occurs in the opposite direction of the trend. The first is called a trend continuation, the second is called a trend reversal.
These are advantages of the Triangles strategy:
|Suitable for||: Market indices (DAX, DOW, CAC...)
: Forex (EUR/USD...)
: Commodities (oil, gold...)
|Instruments||: Futures, CFD-Forex and stocks|
|Trading type||: Daytrading and swing trading|
|Trading tempo||: Variable|
|Using NanoTrader||: Manual or (semi-)automated|
The ascending triangle pattern consists of a rising trend line, which serves as a support line and a resistance line. The break-out occurs when the price breaks out of the triangle, either through the resistance line in the direction of the trend or through the trend line, against the trend.
This example shows an ascending triangle in a bullish market trend. The pattern is completed when the price breaks above the resistance line.
The descending triangle pattern consists of a descending trend line, which serves as a resistance line, and support line. The break-out occurs when the price breaks out of the triangle, either through the support line in the direction of the trend or through the trend line, against the trend.
This example shows a descending triangle in a bearish market trend. The pattern is completed when the price breaks through the support line.
The triangles strategy is very flexible. Traders can select:
Every combination is possible. As usual, these parameters are set in the Designer dialog or directly in the chart. After setting the parameters, the trader waits for a signal. A position is opened when the market price breaks out of the triangle.
This example shows a trader who opted for break-outs in the direction of the trend (trend continuation). A buy signal occurs when the price closes above the resistance line. At that point, resistance becomes support.
This example shows a trader who opted for break-outs against the trend (trend reversal). A buy signal occurs when the price closes above the trend line.
The Triangles strategy includes a profit target, a stop loss and a time stop. If TradeGuard is activated in the NanoTrader, these three orders are placed automatically.
The stop loss can be set to the low (high) of the previous candles. The profit target can be set to a multiple (or a fraction) of the stop loss distance. This results in Return/Risk Ratio of the trader’s choice. If the position is not closed after 10 periods (e.g. 50 minutes on a 5-minute chart) the position is closed by the time stop.
Tip: Traders can see their Return/Risk Ratio (RRR) for each position in the accounts bar.
This example shows a buy signal. The profit target and the stop loss were set at the same distance. This results in a RRR of 1. The market price reaches the profit target and the position is closed with a profit.
Using the NanoTrader follow these steps: