Triangle Formations In Forex Trading (Part II)
Spotting a descending triangle in a downtrend signals the downside breakout of the support level. The crowd psychology behind the descending triangles is that every time the currency price goes down to a certain level that forms the support there are buyers who want to hold that level stubbornly. They thus push the price up each time the support level is tested.
Sellers are quite anxious to sell as they feel that the currency price should fall over time. Thus when the price bounces off the support level, the bears take the opportunity to short again.
Spotting a descending triangle should allow you to be prepared for a downside breakout from the support level especially if it is a down trend. Bulls and bears face a skirmish with both camps not feeling confident of the next market move as with an ascending triangle.
Prices tend to break in the middle or the final third part of the triangle formation. Many of those long positions which have been placed above that level soon get stopped out when the support level is broken.
Unless you have reversal signals in the form of technicals or turn around of the market sentiment, you should always assume the continuation of the prevailing trend. It tends to give off even more bearish vibes than if it is formed during an uptrend if the descending triangle is formed during an existing downtrend.
If the descending triangle appears in the midst of a downtrend, the triangle serves as a continuation pattern. A descending triangle should not be considered to be the final word on impending downside breakout. However, with that said prices also sometimes breakout from above the descending triangle successfully in a burst of bullish momentum.
Symmetrical Triangles: A symmetrical triangle consists of two converging trendlines that join a series of lower highs and higher lows. A symmetrical triangle has some resemblance to a wedge pattern. There are no horizontal lines in symmetrical triangles. This differentiates it from the ascending and the descending triangles.
As they are willing to accept less and less of the price over time, the lower highs reflect the mildly bearish conviction of the sellers. When buyers of the currency pair are willing to pay a bit more to get a piece of action, the higher lows are formed.
A symmetrical triangle tends to be less reliable as compared to an ascending or descending triangle. There is no way to predict the future breakout direction until one of the symmetrical triangle lines is penetrated. As with the other sloping triangles, breakouts usually occur in the middle or the final third of the triangle.
When trading triangle breakouts, you should always consider other pieces of information so that you can better pinpoint a higher probability trade set up. Besides the triangle formation, decreased volatility can also be detected with the exponential moving averages and the Bollinger bands. - 23305
Sellers are quite anxious to sell as they feel that the currency price should fall over time. Thus when the price bounces off the support level, the bears take the opportunity to short again.
Spotting a descending triangle should allow you to be prepared for a downside breakout from the support level especially if it is a down trend. Bulls and bears face a skirmish with both camps not feeling confident of the next market move as with an ascending triangle.
Prices tend to break in the middle or the final third part of the triangle formation. Many of those long positions which have been placed above that level soon get stopped out when the support level is broken.
Unless you have reversal signals in the form of technicals or turn around of the market sentiment, you should always assume the continuation of the prevailing trend. It tends to give off even more bearish vibes than if it is formed during an uptrend if the descending triangle is formed during an existing downtrend.
If the descending triangle appears in the midst of a downtrend, the triangle serves as a continuation pattern. A descending triangle should not be considered to be the final word on impending downside breakout. However, with that said prices also sometimes breakout from above the descending triangle successfully in a burst of bullish momentum.
Symmetrical Triangles: A symmetrical triangle consists of two converging trendlines that join a series of lower highs and higher lows. A symmetrical triangle has some resemblance to a wedge pattern. There are no horizontal lines in symmetrical triangles. This differentiates it from the ascending and the descending triangles.
As they are willing to accept less and less of the price over time, the lower highs reflect the mildly bearish conviction of the sellers. When buyers of the currency pair are willing to pay a bit more to get a piece of action, the higher lows are formed.
A symmetrical triangle tends to be less reliable as compared to an ascending or descending triangle. There is no way to predict the future breakout direction until one of the symmetrical triangle lines is penetrated. As with the other sloping triangles, breakouts usually occur in the middle or the final third of the triangle.
When trading triangle breakouts, you should always consider other pieces of information so that you can better pinpoint a higher probability trade set up. Besides the triangle formation, decreased volatility can also be detected with the exponential moving averages and the Bollinger bands. - 23305
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!
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