Triangle Chart Patterns: Price Action Trading Analysis
The stock market continues to cycle from manic to depressive states. With this bipolar behaviour, many of the stocks in the market can generate tremendous opportunities for traders and investors alike. Whether you’re a novice stock trader or a seasoned veteran, if you’re savvy with chart patterns, then you will be able to take advantage of this type of trading opportunity. Stock chart patterns are an important tool to make predictions about the price movements of shares, commodities and other financial products.
They help you analyse market trends and make judgements about whether it’s a good time to make an investment. Here we have discussed 3 most critical chart patterns:
Ascending Triangle Chart Patterns
An ascending triangle is a bullish chart pattern where the price moves between two moving averages. When the price breaks above the resistance and forms a new high, it signifies a continuation of the upward trend.
The ascending triangle is one of the best-known chart patterns that indicate that there will be strong resistance at the top when the price reaches that area.
When the price is trading inside an ascending triangle, there is a high probability that the price will break out of the pattern.
How Ascending Triangles Are Formed
There are two sides to every trade. Bulls think prices will go higher, while bears think prices will go lower. Ultimately, the bulls are right in this case, as the price upsurges through the upper resistance level.
The pattern illustrates that after the highs are tested, prices move lower. There is a shift in market sentiment. Traders start to sell their shares. This shift in sentiment can be due to many reasons.
Ascending Triangle Chart #1
INDIA 10-year yields have charted really well in the past. You can see a possible #ascendingtriangle with a well-defined horizontal boundary acting as a bottom reversal for #Nifty.
Ascending Triangle Chart No. #2
The #Ascendingtriangle is generally considered as a #bullish formation that is formed to indicate a possible uptrend as a continuation pattern. However, they are typically continuation patterns. Here is an example of M&M chart.
Ascending Triangle Chart # 3
Descending Triangle Chart Pattern
The descending triangle pattern is identified by a horizontal support line with resistance above. It is tradable when price breaks out of the pattern in the direction of the resistance-turned-support line.
A break above resistance confirms the ascending triangle and gives a short-term buy signal.
Conversely, a break below support signals that price has fallen too far, too fast. It confirms the descending triangle and gives a short-term sell signal.
How Descending Triangles Are Formed
Bears believe that this is their chance to get in on the downward momentum. They also have a feeling that the more frequently the support level is tested, the more likely bullish traders will stop participating, and bears can finally push through.
Bears can also fall on the falling volume as an indication of no buyers and thereby believing that they can push prices lower without much resistance.
Descending Triangle Chart No. # 1
The chart as suggested by well-known trader Rishikesh Singh @Equity4Life marks that a possible breakout may come.
Descending Triangle Chart No. #2
See how $XTZ trading inside a symmetrical triangle formed by drawing a #descending #resistance line from the February high. (Source: @BeinCrypto)
The triangle pattern is the most reliable pattern when it comes to identifying continued market direction. To understand how this happens, we must analyze the market internals.
Once a symmetrical triangle pattern is identified on a chart, traders will forecast an upcoming breakout to the upside because it is generally preceded by a period of consolidation.
Also Read: Price Action Trading- Listen What Mr. Market Wants to Tell You
If the trader’s bias is to buy near a support level, this pattern should allow for picking support levels as well as provide a visual as to when to buy.
In symmetrical triangles, it is important not to draw the lines too soon as they should be visible on both bullish and bearish breakouts.
It mainly symbolises a volatility contraction in the market which may result in breakout or breakdown.
The pattern is formed when a share’s price consolidates in a manner that forms two converging trend lines with closely aligned slopes.
The symmetrical triangle tells us that the market is currently undecided about the future direction of the price action. The higher lows and the lower highs also signal that the market seems listless in its direction.
Again, the market may seem more inclined to move in the direction of the existing trend.
Many experienced traders prefer to stay on the sidelines for as long as the market is ranging and until there is a high certainty that the breakout/down is imminent.
We should always wait for the price to leave, and ultimately close, outside of the triangle to make sure that we are not dealing with a failed breakout.
Symmetrical Triangle Chart No. #1
This is a very good chart that has both symmetrical chart patterns and descending chart patterns.
At the end of the continuation pattern, you can see how the volume becomes almost nil indicating a drying supply. And the moment, some demand comes, the stock goes up like a rocket.
Symmetrical Triangle Chart No. #2