The triangle is one of the most reliable stock chart patterns, as it appears and generates profits in Stocks, Forex and Commodities. In this article you will learn how to trade these chart patterns for maximum profits.
There are two types of triangle patterns: symmetrical and asymmetrical. We will describe each pattern, its reliability and exactly how to trade it.
The symmetric triangle pattern consists of two converging trend lines that create a shape of triangle that bounds price. You should not trade this chart pattern as it is highly unreliable.
The triangle can break in either way, either up or down, and price frequently reverses after the breakout, so this pattern is not good enough for us to trade.
It is worth to know that triangles usually break after two-thirds of their size, and if the price went beyond two-thirds of the triangle the breakout will be even less reliably and not recommended to trade.
Reliability: Not reliable.
The asymmetric triangle consists of two trend lines – one that is horizontal and serves as support or resistance, and one that converges into the horizontal one, creating a shape of half a triangle.
This chart pattern is highly reliable and generates very powerful trading signals.
How to Trade the Asymmetric Triangles:
There are two methods of trading this pattern and it depends on your trading style. Aggressive traders will enter trades right on the ascending trend line, after getting a reversal candlestick formation:
This is a very accurate trade that usually has a great risk:reward ratio. When price approaches the horizontal trend line you should gauge the momentum: if you see that the momentum is strong and price may break the trend line and continue downwards, stick to the position. However, if you see that price begins to reverse, close the trade and take your profits.
The aggressive trading method can highly increase the profit potential of any triangle, as you can trade the same pattern 4 times and profit from the ranging movements inside the pattern.
Classical traders would enter the trade when price breaks the horizontal trend line, or at the pullback:
This is also a good trading technique that has around 78% win rate, which is very good. Even if you trade only those patterns, you will make money.
The profit target is calculated using the ‘Measure Rule’, which means that the profit target is as the size of pattern:
The triangle chart pattern is one of the most reliable patterns, that generate profits on many stocks and charts. Learn to trade it and you will have very profitable and accurate trades from it.