If you want to make good money in trading, Triangle patterns will help you do that very quickly. Triangle Chart patterns are one of the most useful chart patterns for day traders. Every intraday trader should be aware of these patterns, not only to make more money, but also to avoid taking trades in the wrong directions. The following patterns are loved by day traders, because a triangle pattern shows decrease in volatility, and it helps to predict a better price direction. They also provide good trading opportunities, with good profit and loss ratio. If you are a day trader, you should be aware of these Triangle Chart patterns to make money in your trading career. In this article, we are going to understand, three main triangle chart patterns, and then, we will see a profitable strategy based around them.
1. Ascending Triangle Pattern in Trading
The Ascending Triangle is a triangle chart pattern that has relatively similar swing highs, but the swing low is rising towards the high. If you draw a trend line along the swing highs, the trend line will look like a horizontal line. But if you draw a trend line along the swing lows, the line will look like an uptrend. It will look like an ascending triangle. Swing high on this chart pattern will act as a strong resistance.
2. Descending Triangle Pattern in Trading
It is a triangle chart pattern that has relatively similar swing lows, but the swing high is falling towards the low. If you draw a trend line along the swing lows, the trend line will look like a horizontal line. But if you draw a trend line along the swing high, the line will look like a downtrend. It will look like a Descending triangle. Swing low on this chart pattern will act as a strong support.
3. Symmetrical Triangle Pattern in Trading
It occurs when the price cannot make new higher highs, but is also struggling to make new lower lows. The result of this looks like a triangle, where price is brought to a narrow range. If you connect the swing highs using a trend line, you will see a downtrend. But if you connect the swing lows with a trend line, you will see an uptrend. Both trend lines intersect each other. Usually, price tends to gain a lot of momentum once it breaks through the pattern.
Now that we understand the three triangle patterns, let’s see how to make money using this information.
Breakout Trading via Triangle Patterns
The strategy of break-out can be used in every kind of triangle. The result is the same, irrespective of whether the triangle is, ascending, descending, or symmetrical. When an asset price goes beyond the upper trend line of a triangle, or when the price of an asset drops below the lower trend line of the triangle, The break-out strategy must be applied. Since each trader will draw the trend lines very differently, the exact point of entry
can vary between traders. To make sure you enter the trade at the right price, you can use volume changes that will illustrate when the price starts gaining momentum. But if you are an experience trader, and want to get a bigger reward relative to your risk, you can use the Anticipation Strategy. Since we know that the price will breakout from the triangle, we can anticipate the breakout direction few minutes before the breakout.
This will get us a better price, and will increase our potential profit. But the skill to anticipate a breakout, you need to have a decent bit of experience in trading. So, if you are a beginner, you should wait for the breakout, and then and only then, you should enter a trade.
Once you have entered a trade, always use a stop loss. Even if the price moves to your advantage, it can always be reversed. The risk is controlled by a stop loss. You can always get out of a bad trade using a stop loss order, instead of losing a lot of money on it. There is always a better trade waiting for you. With a stop loss, you can set a maximum amount you are willing to risk on a trade. You should never risk more than 1 to 2 percent of your total capital, on a single trade. Money management is the key to success in trading. There are couple of ways to set a stop loss for these triangle chart patterns strategies. Once the breakout has occurred, you can set the stop loss below the candle that broke out. Another way is to set the stop loss, out of the triangle. This is more secure, but also reduces the risk to reward ratio. You should back test this strategy and use the stop loss that suits you.
Trading is a probability game. Every trader should understand that they are not going to win every single time. You can make a great living with a trading strategy that has a win-rate of just 60 percent. There is one thing you should look out for when trading the breakouts on these triangle patterns. These are the False Breakouts.
You can be a profitable trader with the triangle patterns, but as any other strategy out there, this strategy does not work 100 percent of the time. Sometimes, you will get a false breakout. False breakout, is the term, used when the price does not continue to move in the direction of the breakout. It falls back into the range. False breakouts are part of the trade, and can contribute to trade failure. Do not be discouraged. Not all outcomes of the breakout are false, and false outcomes can actually help traders take trades on the basis of the anticipation strategy. In other words, it can help you anticipate a trade. But false breakout won’t matter, because in this strategy, the market makes a big move when a successful breakout occurs. Therefore, you can expect a profit of 2 to 3 times the risk. So, even if your win rate is just 50 percent, you can still make money by setting double profit targets on a good breakout.
It is a strong ability to know how to perceive and trade triangle when such pattern arises. They are common, but they will not happen in all stocks every single day. Day traders typically need a large variety of strategies rather than just trade these triangles. The concepts discussed here may also be used to trade other diagram patterns.
Before you try to trade these patterns with real money, practice spotting, drawing and trading triangles in a demo account. Traders can then verify whether they are able to profit from the strategies before any real capital is jeopardized.
The patterns we discussed, can be used by both, day traders and swing traders. But day traders should handle their stop loss properly, because price can make a sudden move in the opposite direction. You can also trail the stop loss candle by candle if you wish, or use any other method to trail the stop loss order. But always take profit, more than what you risk on the trade. It will help you make money even if your win rate is bad. When trading the Triangle patterns, you should also look for other strong support and resistance that are nearby. If the support or resistance levels are in your favor, happily take the trade, otherwise, just hold back and save your money. The best way to find a strong support or resistance, is by looking at the higher time frame.