How To Trade Triangles
Triangles is a group of famous chart patterns, with the most famous being the symmetric triangle. In this article we will teach you how to trade these formations for maximal profit.
The trading rule for this pattern is simple: Do not trade this formation. The symmetric triangle is highly unreliable formation, in which even a conservative entry at the pullback usually result in a loss. It also rarely reaches it projected target. It is also unknown to which direction the triangle will break, as it can be a continuation or a reversal pattern.
A good fact to note about triangles, is that they usually break after two-thirds of their evolution time. For each triangle you spot, place a vertical line on two-thirds of its length - price should break it before reaching this line. If price passed that line the breakout will be even more unreliable.
Reliability: Not Reliable.
Asymmetric triangle looks similar like the triangle. The only difference is that one trend line is horizontal - it can be the Support or the Resistance.They usually break in the direction of horizontal line and are considered a highly reliable pattern which produces multiple profitable entries.
Reliability: Highly Reliable.
How To Trade Asymettric Triangles
Aggressive Traders - Take trades on the sloping trend line, in the direction of the horizontal line. We expect the horizontal line to break and therefore take trades in its direction. However, when taking such a trade it is possible for price to stop on the horizontal level. In this case, liquidate the position as price can bounce and continue ranging inside the triangle.
Conservative Traders - Take trades on the breakout of the horizontal line, and on the pullback of price to the trend line it broke. We will usually take only the pullback trade as it is a stronger signal.
Do not trade if the price breaks the sloping line. It is not a strong signal.
The Profit Target is measured using the Measure Rule. That is, you calculate the distance from highest point of the triangle to its neckline, and project this length from the breakout price. Illustration:
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