Five Chart Patterns Every Trader Should Be Able To Recognize (Part 2)

04/08/2008 12:00 am EST

Focus:

Triangles

There are three types of triangles that technical traders focus on:

- Ascending Triangle
- Descending Triangle
- Symmetrical Triangle


Ascending triangles are considered bullish pattern formations, though depending on whether they are formed during an uptrend or a downtrend they may have different implications towards future price movement. Spotted within an uptrend an ascending triangle is typically considered an indication that the upward trend will continue. Just the opposite, if an ascending triangle forms during a downward trend it is considered an indication of a trend reversal. Essentially, ascending triangles are comprised of a series of candles that, in accordance with the pattern’s name, form the shape of a triangle. The term ascending triangle refers to the fact that the triangle’s two trend lines are not created equally; the top line of the triangle will represent a fairly even level of high prices, while the lower level of the triangle will represent a continued series of higher lows.

The consolidation between buyers and sellers at an upward slant suggests pressure from the buyers. The resistance line can typically only hold for so long before the buyers get the best of the sellers and the price breaks out in an upwards trend, at which point the resistance level often becomes the new support level; or for a seasoned trader, a wise level to place a stop loss. Figure 3 shows an example of an ascending triangle. As can be seen, it is generally safe to assume that the triangle will break out at least five candles before the actual point of the triangle would form.


Descending triangles, naturally, are just the opposite of ascending triangles. In a downward trend the triangle forms as an indication that the trend will continue downwards. In an upward trend the triangle forms as an indication of a trend reversal. Descending triangles form when there are a series of progressively lower highs and relatively even lows. As can be seen in the image below the top line or resistance line of the triangle will be angled down, while the lower line or support level will appear as a level horizontal line.

Symmetrical triangles are most often considered a continuation pattern. Symmetrical triangles can be seen as a series of lower highs and higher lows develop forming the shape of a triangle. This pattern represents a struggle between buyers and sellers, as is usually the case with price consolidation; more often than not symmetrical triangles precede a price breakout. Though it is generally safe to assume that symmetrical triangles will only present themselves as an indication that the current trend either upwards or downwards will continue, this may not always be the case.


The good news for seasoned traders is that one need not really know ahead of time where the market will head, the true key is simply to spot the symmetrical triangle developing. As can be seen in the example above once the support or resistance line of the triangle has been penetrated by two to three consecutive candles the trend will more than likely continue in that direction, thus offering traders an excellent entry point.

Pattern #3 tomorrow.

For more trading education, visit IBFXU at Interbank FX

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