How to Read Stock Charts For Beginners (2021)

What is a Stock Chart?

A stock chart is a visual representation of the current and historical stock prices

displayed on an X & Y axis graph. Stock charts allow you to see the past and recent

price performance of a company’s shares. Significant to stock charts are volume and

price indicators and the ability to see historical price patterns and trends to predict

future price movement

1) Understanding Stock Charts

To understand stock charts, you need to know how supply and demand work in a

marketplace. That is why the volume indicator and the stock price movement are the

critical elements in effectively interpreting stock charts. For example, when the price

rises on increased trading volume, you can expect the price to continue higher.

How to Read Stock Charts * All of this will be covered in the section on
volume and supply and demand.
Reading Stock Charts
You can read stock charts using Stock Charting Software that performs the data

collection and calculations for you. You need to understand stock prices, timeframes,

supply and demand, chart patterns, volumes, and how stock chart indicators are

calculated. We cover the eight different stock chart types, indicators & patterns in

this guide.

This section is all about understanding a basic stock chart. Known as Technical

Analysis or stock chart analysis, chart reading enables us to visualize a stock not

through numbers but patterns. It allows us to get to see the stock, see its history,

learn its personality and make a value judgment on its future.

2. Review the Process of Reading a Stock Chart

Here is a simple process to reading a stock chart:

1. Choose the chart type you want to use

2. Choose the timeframe, days for short-term trading, weeks for long-term

investing

3. Add relevant indicators, e.g., RSI, OBV, MACD

4. Add the Volume indicator

5. Draw trendines linking price highs & price lows

6. Compare volume and price direction to assess the future direction

Volume – Supply & Demand

There are some important characteristics of volume and price in the marketplace. It

is all about the direction of price movement compared to the increases or decreases

in volume. In short, it is about Buyers and Sellers.

Price Up–Volume Up Stock Price moves higher on increased volume. This is bullish

as it shows us that more participants are interested in selling the stock at higher

prices and that, most importantly, more people are interested in buying the stock at

those higher prices. In an uptrend, this signals the trend will continue; in a

downtrend, this signals a possible correction or change in the trend’s short-term

direction to upwards.

Price Up-Volume Down in an uptrend is very bearish as it suggests that although

prices are rising, there are fewer participants suggesting people are backing away
from the higher prices. This also infers that the trend is weakening. In a downtrend, it

suggests a continuance of the downtrend.

Price Down–Volume Up in a downtrend may signal that a change in trend is likely;

as we saw with the “Blow off bottom,” there might be a huge selling climax, then the

trend adjusts from down to sideways or down to up. This may indicate a crisis, panic

selling, or simply when a stock is going out of favor in an uptrend. The pressure is on

the sell-side, and to sell, they have to accept lower prices. A strong negative signal!

Price Down–Volume Down in a downtrend can suggest that the retreat is slowing

or beginning to end as fewer people are interested in buying or selling the stock at

these prices. In an uptrend, this may indicate the stock is stopping for breath or due

a pullback before continuing on its upward trajectory. Volume tends to trend in the

same direction as the price trend, so PDVD also suggests a continuation of the main

downtrend, or a pullback and possible continuation of an uptrend.

So you see not only the price but the direction of both price and volume is important.

This is where the Price Volume Indicators play an important role.

Defining Patterns
• A pattern is bounded by at least two trend lines (straight or curved)

• All patterns have a combination of entry and exit points

• Patterns can be continuation patterns or reversal patterns

• Patterns are fractal, meaning that they can be seen in any charting period (weekly,
daily, minute, etc.)

• A pattern is not complete or activated until an actual breakout occurs

Types of chat patterns

Chat patterns fall broadly into three categories: continuation patterns, reversal

patterns and bilateral patterns.

  A continuation signals that an ongoing trend will continue

 Reversal chat patterns indicate that a trend may be about to change direction

 Bilateral chat patterns let traders know that the price could move either way –
meaning the market is highly volatile

Techniques for Trading Patterns

• Breakouts

• Entry Stops

• Protective Stops

• Retracements

Breakouts

Violation of Trend Line, Support or Resistance, or previous reversal point

It signifies that a change in buyer and seller behaviour and signals the beginning or
end of a trend.

Resistance Breakout

Price
 Confirmation Filters
Apply a confirmation filter to determine whether a
breakout has taken place.

Types of Filters

• Intrabar

• Multiple closes

• Time

• Percentage or point

• Money

Multi-Bar Patterns

Horizontal Congestion
• Double and Triple
10
Tops/Bottoms
• Rectangles
Triangles
• Symmetrical
• Ascending and Descending
• Wedges
Other
• Head and Shoulders
• Cup and Handle
Candlestick Patterns

• Doji
• Harami
• Hanging Man/Hammer
• Shooting Star/Inverted Hammer
• Engulfing
• Dark Cloud/Piercing

Short-Term Patterns

• Pennant/Flag
• Gaps
• Pipe Bottom
• Narrow Range

Horizontal Congestion: Double Top

Characteristics:
• Two successive peaks separated by an opposite
reversal point

• Either rounded or pointed peaks that are usually at

roughly the same price (resistance level)

• Price must break out of middle reversal point

Calculate target price: (from below images)

Taking the height from the highest peak to the trough and then subtracting

the amount from the breakout price to the downside.

 Double Top (Breakout Down)

Entry Pullback

Support Line
Breakout

 A double top is another pattern that traders use to

highlight trend reversals. Typically, an asset’s price
will experience a peak, before retracing back to a level
of support. It will then climb up once more before
reversing back more permanently against the
prevailing trend.
 Double Top The double-top pattern is found at the peaks of an upward trend

and is a clear signal that the preceding upward trend is weakening and that

buyers are losing interest. Upon completion of this pattern, the trend is

considered to be reversed and the security is expected to move lower. The

first stage of this pattern is the creation of a new high during the upward trend,

which, after peaking, faces resistance and sells off to a level of support. The

next stage of this pattern will see the price start to move back towards the

level of resistance found in the previous run-up, which again sells off back to

the support level. The pattern is completed when the security falls below (or

breaks down) the support level that had backstopped each move the security

made, thus marking the beginnings of a downward trend.

 Figure 1: Double-top pattern

It's important to note that the price does not need to touch the level of resistance but

should be close to the prior peak. Also, when using this chart pattern one should wait

for the price to break below the key level of support before entering. Trading before

the signal is formed can yield disastrous results, as the pattern is only setting up the

possibility for the trend reversal and could trade within this banded range for some

time without falling through. This pattern is a clear illustration of a battle between

buyers and sellers. The buyers are attempting to push the security but are facing

resistance, which prevents the continuation of the upward trend. After this goes on a

couple of times, the buyers in the market start to give up or dry up, and the sellers

start to take a stranglehold of the security, sending it down into a new downtrend.

Again, volume should be an important focus as one should look for an increase in

volume when the security falls below the support level. Also, as in other chart
patterns, do not be alarmed if there is a return to the previous support level that has

now become a resistance level in the newly established trend.

Breakout

Horizontal Congestion: Double Bottom

Characteristics:
• Two successive troughs separated by a peak

• Either rounded or pointed troughs that are usually at roughly the

same price (support level)

• Price must break out of middle peak

Double Bottom (Breakout Up)

Breakout

Resistance line

Entry
Throwback
Calculate target price:
Taking the distance from the troughs to the peak and then

adding that amount from the breakout price to the upside.

Breakout

Horizontal Congestion: Tripple Top

Characteristics:

• Three distinct peaks at roughly the same price

level separated by two intermittent troughs

• Breakout occurs when price exceeds the extreme of

the intermittent trough or a trend line connecting
those points

Resistance line

PULL
 Entry Breakout

Calculate target price:

Take the height from the highest peak to the lowest trough in the
pattern. Then subtract that amount from the lowest trough in the
pattern to generate a price target.

Horizontal Congestion: Tripple Bottom

Characteristics:

• Three distinct troughs at roughly the same price level separated by two
intermittent peaks at any level

• Breakout occurs when price exceeds the extreme of the intermittent peaks or
a trend line connecting those points

• Best performance may be after a sustained decline*

• An average performance, but watch for failures

Entry Breakout

Resistance line

Throwback
Support line

Calculate target price:

Take the height from the highest peak to the lowest trough in the pattern.

Then add that amount to the highest peak in the pattern to generate a price

target.

Symmetrical triangle
For symmetrical triangles, two trend lines start to meet which signifies a

breakout in either direction. The support line is drawn with an upward trend,

and the resistance line is drawn with a downward trend. Even though the

breakout can happen in either direction, it often follows the general trend of

the market.
 SYMMETRICAL TRIANGLE
The symmetrical triangle, which can also be referred to as a
coil, usually forms during a trend as a continuation pattern.
The pattern contains at least two lower highs and two higher
lows. When these points are connected, the lines converge as
they are extended and the symmetrical triangle takes shape.
You could also think of it as a contracting wedge, wide at the
beginning and narrowing over time.
While there are instances when symmetrical triangles mark

important trend reversals, they more often mark a

continuation of the current trend. Regardless of the nature of

the pattern, continuation or reversal, the direction of the next

major move can only be determined after a valid breakout. We

will examine each part of the symmetrical triangle individually,

and then provide an example with Conseco.

1. Trend: In order to qualify as a continuation pattern, an

established trend (at least a few months old) should exist.

The symmetrical triangle marks a consolidation period

before continuing after the breakout.

2. Four (4) Points: At least 2 points are required to form a

trend line and 2 trend lines are required to form a

symmetrical triangle. Therefore, a minimum of 4 points are

required to begin considering a formation as a symmetrical

triangle. The second high (2) should be lower than the first

(1) and the upper line should slope down. The second low

(2) should be higher than the first (1) and the lower line

should slope up. Ideally, the pattern will form with 6 points

(3 on each side) before a breakout occurs.

3. Volume: As the symmetrical triangle extends and the

trading range contracts, volume should start to diminish.

This refers to the quiet before the storm, or the tightening

consolidation before the breakout.

4. Duration: The symmetrical triangle can extend for a few

weeks or many months. If the pattern is less than 3 weeks, it

 is usually considered a pennant. Typically, the time duration

is about 3 months.

5. Breakout Timeframe: The ideal breakout point occurs 1/2

to 3/4 of the way through the pattern's development or time-

span. The time-span of the pattern can be measured from

the apex (convergence of upper and lower lines) back to the

beginning of the lower trend line (base). A break before the

1/2 way point might be premature and a break too close to

the apex may be insignificant. After all, as the apex

approaches, a breakout must occur sometime.

6. Breakout Direction: The future direction of the breakout

can only be determined after the break has occurred.

Sounds obvious enough, but attempting to guess the

direction of the breakout can be dangerous. Even though a

continuation pattern is supposed to breakout in the

direction of the long-term trend, this is not always the case.

7. Breakout Confirmation: A break should be on a closing

basis for it to be considered valid. Some traders apply a

price (3% break) or time (sustained for 3 days) filter to

 confirm validity. The breakout should occur with an

expansion in volume, especially on upside breakouts.

8. Return to Apex: After the breakout (up or down), the apex

can turn into future support or resistance. The price

sometimes returns to the apex or a support/resistance level

around the breakout before resuming in the direction of the

breakout.

9. Price Target: There are two methods to estimate the extent

of the move after the breakout. First, the widest distance of

the symmetrical triangle can be measured and applied to

the breakout point. Second, a trend line can be drawn

parallel to the pattern's trend line that slopes (up or down)

in the direction of the break. The extension of this line will

mark a potential breakout target.

In Technical Analysis of Stock Trends (1948), Edwards and

Magee suggest that roughly 75% of symmetrical triangles are

continuation patterns and the rest mark reversals. The

reversal patterns can be especially difficult to analyze and

often have false breakouts. Even so, we should not anticipate

the direction of the breakout, but rather wait for it to happen.

Further analysis should be applied to the breakout by looking

for gaps, accelerated price movements, and volume for

confirmation. Confirmation is especially important for upside

breakouts.

Prices sometimes return to the breakout point of apex on a

reaction move before resuming in the direction of the

breakout. This return can offer a second chance to participate

with a better reward to risk ratio. Potential reward price

targets found by measurement and parallel trend line

extension are only meant to act as rough guidelines. Technical

analysis is dynamic and ongoing assessment is required. In the

first example above, SUNW may have fulfilled its target (42) in

a few months, but the stock gave no sign of slowing down and

advanced above 100 in the following months.

Conseco (CNCEQ) formed a rather large symmetrical triangle

over a 5-month period before breaking out on the downside.

1. The stock declined from 50 in Mar-98 to 22 in Oct-98 before

beginning to firm and consolidate. The low at 22 was

probably an over-reaction, but the long-term trend was

down and established for almost a year.

2. After the first 4 points formed, the lines of the symmetrical

triangle were drawn. The stock traded within the

 boundaries for another 2 months to form the last 2 points.

3. After the gap up from point 3 to point 4, volume slowed over

the next few months. There was some increase in volume in

late June, but the 60-day SMA remained in a downtrend as

the pattern took shape.

4. The red square marks the ideal breakout time-span from

50% to 75% of the pattern. The breakout occurred a little

over 2 weeks later, but proved valid nonetheless. While it is

preferable to have an ideal pattern develop, it is quite rare

for that to occur.

5. After points 5 and 6 formed, the price action moved to the

lower boundary of the pattern. Even at this point, the

direction of the breakout was still a guess and it was

prudent to wait. The break occurred with an increase in

volume and accelerated price decline. Chaikin Money

Flow declined past -30% and volume exceeded the 60-day

SMA for an extended period.

6. After the decline from 29 1/2 to 25 1/2, the stock

rebounded, but failed to reach potential resistance from the

apex. The weakness of the reaction rally foreshadowed the

sharpness of the decline that followed.

7. The widest point on the pattern extended 10 1/2 points.

With a break of support at 29 1/2, the measured decline was

estimated to around 19. By drawing a trend line parallel to

the upper boundary of the pattern, the extension estimates

a decline to around 20.

Symmetrical triangle chart patterns

Symmetrical triangle chart patterns
Triangles are a popular price pattern that traders use. There are several different

triangle patterns that can be identified including:

 Symmetrical triangles

 Ascending triangles

 Descending triangles

This lesson will first take you through what a symmetrical triangle chart pattern is and

then teach you how to use it to trade.

In the following lessons, we will then introduce you to ascending and descending

triangles.

Identifying a symmetrical triangle pattern

The chart below demonstrates how a symmetrical triangle pattern may look:

A symmetrical triangle is found when the price is consolidating

A symmetrical triangle occurs when the price is making lower highs and higher lows.

This usually means that neither the buyers nor the sellers are able to gain control,

causing the price to range within a triangle.

The price usually trades between trend lines which act as support and resistance,

preventing the price from breaking through to new highs or lows.

Trading a symmetrical triangle: method one
The first way to trade a symmetrical triangle is to look for a breakout on either side of

the triangle and then trade in the direction of the breakout. Wait for a candle to close

above or below the trend line before you look to enter.

The stop loss should be placed at the opposite slope of the triangle.

 When buying, the stop loss would be placed below the bottom slope.

 When selling, the stop loss would be placed above the top slope.

The take profit level is determined by taking the height of the back of the triangle and

placing it an equal distance from the trend line breakout.

The chart below demonstrates where the entry would be placed. In this case the

price broke out to the upside of the triangle.

1. Long entry after the price breaks through the triangle to the upside
 2. Stop loss below the lower slope of the triangle

3. Take profit goes the same distance away from the entry as the height of the

back of the triangle

The chart below demonstrates the price breaking out to the downside:

1. Short entry when the price breaks through triangle to the downside

2. Stop loss above the upper slope of the triangle

3. Take profit goes the same distance away from the entry as the height of the

back of the triangle

Trading a symmetrical triangle: method two

The second way to trade a symmetrical triangle is to wait for the price to break out of

the triangle and then come back to retest the slopes of the triangle as either support

(in the case of a long trade) or resistance (in the case of a short trade).
The stop loss would go either above the resistance level (in the case of a short

trade) or below the support level (in the case of a long trade).

The profit target is the same as in method two, by measuring the distance of the

back of the triangle and placing the profit target the same distance away from the

entry.

The chart below demonstrates the second way you can trade the symmetrical

triangle pattern for a long trade:

1. Long entry after the price comes back to test the slope of the triangle as

support

2. Stop loss goes below the support area

3. Profit target goes the same distance as the back of the triangle, up from the

entry
Summary
So far, you have learned that

 the symmetrical triangle chart pattern indicates a possible breakout in either

direction.

 you can trade using a symmetrical triangle by placing a trade when the price

breaks through the triangle and trading in the direction of the breakout. The

stop loss would go on the opposite side of the triangle. The take profit is

placed the same distance away from the entry as the height of the back of the

triangle.

 you can also trade using a symmetrical triangle by waiting for the price to

come back and then place a trade once the price has found support (in the

case of a long trade) or resistance (in the case of a short trade). The stop loss

would go above, or below, the resistance or support levels respectively. The

profit target would be placed the same distance away from the entry as the

height of the back of the triangle.

Symmetrical Triangle
A symmetrical triangle is a chart formation where the slope of the
price’s highs and the slope of the price’s lows converge together to
a point where it looks like a triangle.

What’s happening during this formation is that the market is making

lower highs and higher lows.
This means that neither the buyers nor the sellers are pushing the
price far enough to make a clear trend.

If this were a battle between the buyers and sellers, then this would
be a draw.

This is also a type of consolidation.

In the chart above, we can see

that neither the buyers nor the sellers could push the price in their
direction. When this happens we get lower highs and higher lows.

As these two slopes get closer to each other, it means that a

breakout is getting near.
We don’t know what direction the breakout will be, but we do know
that the market will most likely break out. Eventually, one side of the
market will give in.

So how can we take advantage of this?

Simple.
We can place entry orders above the slope of the lower highs and
below the slope of the higher lows of the symmetrical triangle.

Since we already know that the price is going to break out, we can
just hitch a ride in whatever direction the market moves.

In this example, if we placed an entry order above the slope of the

lower highs, we would’ve been taken along for a nice ride up.

If you had placed another entry order below the slope of the higher
lows, then you would cancel it as soon as the first order was hit.

The Symmetrical Triangle Pattern

The symmetrical triangle is a consolidation chart pattern that occurs when
the price action trades sideways. It’s considered to be a neutral pattern, as
two trend lines are converging until the intersection point.
The purpose of this article is to look at the structure of the symmetrical
triangle, what the message that the market sends through the symmetrical
triangle is. Moreover, we will be sharing a basic symmetrical triangle pattern
trading strategy.

The Structure of the Pattern

The symmetrical triangle pattern is a neutral chart formation. Two converging
lines are moving to each other as the market makes the lower highs and the
higher lows. As the space between two converging lines gets narrower, the
likelihood of a strong breakout increases.

At the beginning of a triangle, the distance between two trend lines is the
longest one. The consolidation of energy from both sides occurs, which allows
the price action to trade sideways for a certain period of time.

It’s exactly this consolidation phase that is the reason why breakout/downs are
usually followed by a strong volume as many traders are on the sidelines
waiting for the market to decide in which direction it wants to go.
Although the symmetrical triangle is a neutral pattern, the likelihood of a

breakout is stronger towards the direction of the overall trend, meaning

that if the symmetrical triangle has been formed after an uptrend,

the probability of a break is higher compared to a breakdown.

Hence, we make a difference between the bullish symmetrical triangle

pattern and a bearish symmetrical triangle pattern. On the left side of the

picture above, we have a bullish symmetrical triangle, as the direction of

the existing trend is to the upside, while the bearish symmetrical triangle

is formed from the downtrend.

In these situations, the symmetrical triangle is then classified as a

continuation pattern as the triangle itself simply gives a form to the

temporary pause within an overall uptrend or downtrend.

It’s important to note that the perfectly symmetrical triangle is extremely

difficult to find. At least one of the two trend lines almost always leans

more than the other. For this reason, you should focus on the message

that the market is sending, rather than identifying the perfectly

symmetrical triangle.
What the Symmetrical Triangle Shows Us
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.

As with most forms of technical chart patterns, symmetrical triangle

patterns are best used in conjunction with other technical indicators and

chart formations. For this reason, experienced traders use the volume to

verify the breakout/down.

Spotting the symmetrical triangle

As outlined earlier, the symmetrical triangle consists of the two

converging trend lines as the price action moves sideways. It’s important
that we correctly identify the symmetrical triangle chart pattern and draw

the lines precisely in order to make sure that we don’t miss out on a

breakout/down.

In a USD/CAD four-hour chart lower, we see a downtrend as the sellers

push the market lower. After a recent swing high, the market starts

making the lower highs, while on the other side of the market we witness

the higher lows. Hence, this consolidation phase within a downtrend is

formed within the symmetrical triangle.

The consolidation phase is marked by multiple tagging of the two trend

lines on both sides, as the buyers and sellers attempt to break the

triangle. Finally, the sellers are able to push the price action below the
triangle as two converging lines almost touched. In this example, the

symmetrical triangle acts like a continuation pattern that simply helps to

extend the downtrend further lower.

Trading the Symmetrical Triangle Pattern

Once we have identified the symmetrical triangle pattern on a chart, we

are waiting for a breakout/down to occur. Similar to other

breakouts/downs, there are two options to enter a trade. First, you can

enter into the market as soon as the candle on a high time frame chart

(at least 4H) closes above or below the triangle.

Secondly, you can opt to wait for the price action to break the triangle and then

return to retest the broken trend line. This option gives you a better entry as you can

use the opportunity to enter the trade exactly at the retest. On the other

hand, its limitation lies in the fact that you may never get the opportunity

to enter a trade as the retest isn’t guaranteed to happen.

The advantage of the first option is that you can’t miss out on a trade,

as you are in as soon as the candle closes above/below the trend line.

However, the close may occur far away from the trend line, which means

that your take profit window has narrowed, while the amount of pips you

are risking has increased.

In this particular example, we see that the price action returned higher

to retest the supporting trend line after the breakdown. In the end, both

options were on the table for us to choose from. In order to be sure that

we have the opportunity to capitalize on the breakout, we decided to

enter into the market once the H4 candle closed below the triangle’s

supporting line (the black line).

The stop loss order is placed within the body of a triangle as any return

to the inside invalidates the pattern. You can also put the stop loss order

above the resisting trend line when the breakout occurs near the end of

a wedge i.e. when the distance between two trend lines is very short.

The vertical blue line measures the distance between the two trend lines
at the start of a triangle, and by copy-pasting it from the start of a move

that resulted in a breakdown, you will determine the take profit level.

The breakdown extended lower, and the lowest point of the downtrend

almost touched our take profit order. This is a good example to show

that you should always leave some room for the market to maneuver in

the context of the take profit and stop loss. Ultimately, we booked

around 250 pips by risking 100 pips i.e. 1:2.5 risk-reward ratio.

WHAT IS A TRIANGLE PATTERN?

A forex triangle pattern is a consolidation pattern that occurs mid-trend

and usually signals a continuation of the existing trend. The triangle
chart pattern is formed by drawing two converging trendlines as price
temporarily moves in a sideways direction. Traders often look for a
subsequent breakout, in the direction of the preceding trend, as a signal
to enter a trade.
This article makes use of line chart illustrations to present the three

triangle chart patterns. Traders ought to familiarize themselves with the

three technical analysis charts and figure out which one suits them best,

although, most prefer using forex candlestick charts.

SYMMETRICAL TRIANGLES

The symmetrical triangle can be viewed as the starting point for all

variations of the triangle pattern. As the name suggests, a triangle can

be seen after drawing two converging trendlines on a chart.

The difference between the symmetrical and the other triangle patterns

is that the symmetrical triangle is a neutral pattern and does not lean in

any direction. While the triangle itself is neutral, it still favors the direction

of the existing trend and traders look for breakouts in the direction of the

trend.
Symmetrical triangle trading strategy

Triangles provide an effective measuring technique for trading

the breakout, and this technique can be adapted and applied to the other

variations as well.

The AUD/USD chart below shows the symmetrical triangle. The vertical

distance between the upper and lower trendline can be measured and

used to forecast the appropriate target once price has broken out of the

symmetrical triangle.

Its important to note that finding the perfect symmetrical triangle is

extremely rare and that traders should not be too hasty to invalidate

imperfect patterns. Traders ought to understand that triangle analysis is

less about finding the perfect pattern and more about understanding

what the market is communicating, through price action.

 ASCENDING TRIANGLE PATTERN

The ascending triangle pattern is similar to the symmetrical triangle except

that the upper trendline is flat and the lower trendline is rising. This

pattern indicates that buyers are more aggressive than sellers as price

continues to make higher lows. Price approaches the flat upper trendline

and with more instances of this, the more likely it is to eventually break

through to the upside.

Ascending triangle trading strategy

An ascending triangle can be seen in the US Dollar Index below. Leading

on from the existing uptrend, there is a period of consolidation that forms

the ascending triangle. Traders can once again measure the vertical

distance at the beginning of the triangle formation and use it at the

breakout to forecast the take profit level. In this example, a rather

tight stop can be placed at the recent swing low to mitigate downside

risk.
DESCENDING TRIANGLE PATTERN

The descending triangle pattern on the other hand, is characterized by a

descending upper trendline and a flat lower trendline. This pattern

indicates that sellers are more aggressive than buyers as price

continues to make lower highs.

Descending triangle trading strategy

Below is a good example of the descending triangle pattern appearing

on GBP/USD. A downtrend leads into the consolidation period where

sellers outweigh buyers and slowly push price lower. A strong break of
the lower trend line presents traders with an opportunity to go short. In

this example, it doesn’t take long for the position to move in the opposite

direction, highlighting the importance of setting an appropriate stop level.

The take profit level is set using the vertical distance measured at the

beginning of the descending triangle formation.

TRADING WITH TRIANGLE PATTERNS: KEY THINGS TO

REMEMBER

 Always be cognisant of the direction of the trend prior to the

consolidation period.
  Make use of upper and lower trend lines to help identify which

triangle pattern is being formed.

 Use the measuring technique discussed above to forecast

appropriate target levels

 Adhere to sound risk management practises to mitigate the risk of

a false breakout and ensure a positive risk to reward ratio is

maintained on all trades.

FURTHER READING ON FOREX TRADING PATTERNS

 Other popular continuation patterns include the rising wedge, falling

wedge and pennant patterns.

 In contrast to continuation patterns is reversal patterns. These

patterns often precede a reversal in the market with the top

patterns including the Head and shoulders pattern, the Morning

Star and Evening Star.

 If you are just starting out on your trading journey it is essential to

understand the basics of forex trading in our free New to

Forex trading guide.

 What is a Symmetrical Triangle Pattern?
In technical analysis, it's one of the most popular triangle price formations that falls

under the category of continuation patterns. However, as the name suggests, it can

be traded both ways.

The price action needs to move in a series of lower highs and higher lows in order to

be able to define a triangle.

In terms of its characteristics, you need only look for two things:

 An ascending bottom trendline that goes in the upwards direction.

 A descending top trendline that goes in the downward direction.

It can be drawn simply by connecting the swing high/low with two sloping lines that

will converge at some point in the future, making the break inevitable.

You need a minimum of two hits on each trendline in order to draw the pattern. As

long as this criterion is met, it can be defined as a triangle pattern.

Now, keep in mind that the symmetrical triangle is a neutral chart formation and it

can break in both directions.

Note* When we finally break from the Symmetrical Triangle pattern, the

following move needs to be very violent and fast moving.

Here is a real example:

The Psychology behind the Symmetrical

Triangle Pattern
Basically, what's happening here is the buyers and sellers are at a draw with each other.

With no clear trend forming, it will keep squeezing smaller and smaller, following the

trend lines.
Think of it as a tug of war between the buyers and sellers.

As the two lines get closer and closer together, it's evident that something will have

to give. Whoever wins the battle will be who you want to catch a ride with by entering

a buy or a sell.

The only real challenge with triangle patterns is identifying the real triangle pattern

breakout and having enough confidence to hold the trade until the minimum target

has been reached.

Now, let’s see how you can effectively trade with the Price Channel trading strategy

and how to make profits from basically using no technical indicator.

Symmetrical Triangle Strategy – Buy Rules

The Symmetrical trading strategy will help you increase your account balance

quite rapidly. You simply have to employ this step-by-step guide on triangle trading

to make sure you’re correctly reading the information given by the classical

Symmetrical Triangle Geometry Pattern.

Moving forward, we present the sell-side rules:

Step#1 Identify at least two lower highs and two higher

lows and draw a Symmetrical Triangle pattern by

connecting these swing points.

It should be pretty easy to draw this pattern.

Just connect at least two higher lows with an ascending trendline.

Repeat the same process with at least two lower highs using a descending trendline.

Note* Make sure you extend the triangle lines to the right of the chart

until they converge.

Step#2 Check to see if the prevailing trend is moving upwards

The pattern works best when used as a continuation pattern. This means that before

the symmetrical triangle pattern forms we need to have a prior trend (bullish).
The prevailing trend prior to the ascending triangle chart pattern can provide a clue

about the triangle breakout direction. For high probability setups we encourage you

to only trade this in the direction of the prevailing trend.

The Symmetrical Triangle is more bullish if it’s formed within an uptrend.

When this breakout happens it will attract many other people to the “party.”

So far, so good.

Now we need to define our entry technique, which brings us to the third step of this

strategy.

Step#3 Wait for the Triangle breakout and BUY only after the

breakout candle closes above the descending trendline.

We treat this breakout with caution, which is why we wait for price confirmation in the

form of the breakout candle closing above the Symmetrical triangle pattern.
You will benefit greatly by waiting for the breakout candle to close above the pattern.

This will prevent you from taking unnecessary risk and you’ll avoid many of the false

breakouts.

Often times people will place pending orders above and below the Symmetrical

pattern in anticipation of a breakout chart pattern; this is a trap and is one of the

reasons the false breakout happens.

We want to avoid that!

Note* The best time to enter any kind of triangle is when the price has

broken and closed above the upside trendline – in the case of a bullish

breakout – or when the price has broken and closed below the

downside trendline, in the case of a bearish breakout.

The next logical thing we need to establish for the Price Channel trading strategy is

where to take profits.

See below…

Step#4 Take Profit 1 at the at the same price distance as the

Triangle Height, Take Profit 2 at 2xTriangle Height

The textbook profit target for any type of triangle is the height of the triangle

projected in the direction of the breakout from the breakout point.

Now you might be asking yourself, "What is the triangle height?"

We need to work with the triangle parameters to calculate the triangle pattern height.

By measuring the distance between the highest point formed within the Symmetrical

Triangle and its lowest point, we obtain the triangle height.

So, the triangle height can be obtained by simply measuring the price distance from

the highest to the lowest price point within the triangle formation.

To measure a profit target from the triangle shape pattern you simply take the

triangle height and project that from the breakout point.

The ascending triangle chart pattern employs multiple entry techniques.

The first take profit comes at the same price distance as the triangle height, and

because we have found that there is more often a high probability of much bigger

movement generated by the breakout, we have a second profit target at 2 x triangle

height.

The next important thing we need to establish is where to place your protective stop

loss.

See below…

Step #5: Place the protective stop loss below the swing low

prior to the Triangle Breakout

A common approach is to hide your protective stop loss just below the last swing low

prior to the breakout.

You can use different stop loss techniques as well, like placing the SL below.
Note*** The above was an example of a BUY trade… Use the same
rules – but in reverse – for a SELL trade. In the figure below, you can
see an actual BUY trade example, using the Price Channel trading
strategy.
Conclusion
The Symmetrical Triangle trading strategy is one of the most proficient ways to trade

consolidations because the triangle pattern generally occurs during ranging periods.

Generally, we draw the triangle pattern to highlight these ranging areas.Also read

about Trader's Tech and Installing MT4 EAs with Indicators.

You can very easily capitalize on this simple trading pattern by following our step-by-

step guide presented throughout this article.

When trading Symmetrical Triangle pattern, it’s worth to keep in mind that

sometimes these chart patterns can simply continue to move sideways and emerge

into a consolidating market.

Thank you for reading!

Chart pattern: Bullish symmetrical triangle

What is a bullish symmetrical triangle?

A bullish symmetrical triangle is a bullish continuation chart pattern. The pattern is

formed by two converging trend lines that are symmetrical in relation to the

horizontal line.

The first line is a bearish trend line creating the resistance, also called the

"resistance line of the bullish symmetrical triangle".

The second line is a bullish trend line creating the support, also called the "support

line of the bullish symmetrical triangle".

For the symmetrical triangle to be called "bullish", the movement preceding the

triangle’s formation must be bullish.

A bullish symmetrical triangle is confirmed/valid if it has good oscillation between the

two lines.

Each of these lines must have been touched at least twice to validate the pattern.

NB: a line is said to be "valid" if the price line touches the support or resistance at

least 3 times.

This implies that the bullish symmetrical triangle is considered valid if the price

touches the support line at least 3 times and the resistance line twice (or the support

line at least twice and the resistance line 3 times).

The price objective for a bullish symmetrical triangle is determined by the height of

the base of the triangle plotted at the breakout point (exit from the triangle). To
achieve the price objective, another technique consists in drawing a parallel to the

bullish symmetrical triangle’s support line from the first contact with the resistance

line.

Graphical representation of a bullish symmetrical

triangle

Statistics of bullish symmetrical triangle

- In 63% of cases, exit from a bullish symmetrical triangle is bullish.

- In 89% of cases, the upward movement continues after exiting the triangle.

- In 81% of cases, the price manages to reach the triangle's price objective in the

event of an upward exit.

- In 60% of cases, the price makes a pullback in support on the triangle’s resistance

line.

- In 16% of cases, the price makes false breaks in the support/resistance lines (false
exits from the bullish symmetrical triangle).

Notes on bullish symmetrical triangle

- A bullish symmetrical triangle’s exit most often occurs at about 80% of the pattern.

- Clean and forceful breaks/exits give better performance.

- Performance is best when the bullish symmetrical triangle is formed at the

beginning of a bullish trend.

- Avoid opening a position if the break/exit occurs before 3/4 of the triangle.

- Support pullbacks on the triangle’s resistance line are detrimental to performance.

What does a symmetrical

triangle look like?
Converging trend lines of support and resistance give the triangle pattern its unique

shape. This happens because the trading performance gets stronger and tighter until

the market breaks out with great intensity.

Buyers and sellers then are in a period where they are not sure where the market is

directed. Their uncertainty is identified by their actions of buying and selling very

quickly. That makes the pattern look like an increasingly tight coil moving across the

chart.

As the range between the peaks and troughs marking the progression of price

narrows, the trend lines meet at the “apex,” established at the right of the chart. The
“base” of the triangle is the vertical line at the left of the chart which measures the

vertical height of the pattern.

A symmetrical triangle shows two converging trendlines, one is ascending, the other

is descending. They are creating a sideways symmetrical triangle. The formation

happens because prices are making both lower highs and higher lows.

The pattern should display two highs and two lows. All of them are touching the

trendline as a minimum of four reversal points is necessary to draw the two

converging trendlines. As you can see, this graph above has these points.

We can divide symmetrical triangles into two groups:

1. symmetrical bottoms – prices trend down then form lower highs and higher lows.

The breakout can be either downward or upward.

2. symmetrical tops – prices trend up then form lower highs and higher lows. The

breakout can be either downward or upward.

Why is the symmetrical triangle pattern important?

A symmetrical triangle pattern is almost easy to identify. In addition, triangle patterns

can be quite reliable to trade with very low failure rates. There is a caution

concerning trading these patterns, however. As mentioned previously, a triangle

pattern can be either continuation or reversal patterns. Typically, they are

continuation patterns. To reach the reliability for which the triangle is well known,

technical analysts advise waiting for a clear breakout of one of the trendlines defining

the triangle

Triangle patterns are usually sensitive to correct and trustworthy analysis, with the

requirement that the investor must wait for a stable breakout. It is opposed to a

premature. In general, the failure rate for triangles drops significantly if the investor

waits for a valid breakout and, once that breakout happens, the pattern proves

strongly stable.

Experts advise that a minimum entrance criterion would be a closing price outside

the trendline and not just an intraday entrance.

Is the volume important in a symmetrical triangle pattern?

Volume is an important factor to consider when determining whether a formation is a

true triangle. Typically, volume follows a reliable pattern: volume should diminish as

the price swings back and forth between an increasingly narrow range of highs and
lows. However, when the breakout occurs, there should be a noticeable increase in

volume. If this volume picture is not clear, investors should be cautious about

whether the pattern is a true triangle.

Let’s say, this traditional volume pattern happens because of investor sentiment

during the creation of a triangle.

Investors are skeptical. Their dilemma means that they are buying and selling earlier.

That turns into a narrowing of the highs and lows, creating the “coil” shape, indicative

of the triangle. Because investors are skeptical, many are holding on to their stocks,

awaiting the market’s next move. When breakout finally occurs, there’s a wave in

market activity because investors are finally convinced enough about the direction of

the market to release their suppressed supply or demand.

The details that you should pay attention to in a symmetrical

triangle pattern

1. The occurrence of a Breakout – Technical analysts pay close attention to how

long the triangle takes to develop to its peak. The general rule is that prices should

break out – clearly penetrate one of the trendlines – somewhere between three-

quarters and two-thirds of the horizontal width of the formation. The breakout, in

other words, should occur well before the pattern reaches the apex of the triangle.

To take the measurement, begin by drawing the two converging trendlines. Measure

the length of the triangle from its base to the peak. Next, plot the distance along the

horizontal width of the pattern where the breakout should take place. If prices remain

within the trendlines beyond the three-quarters point of the triangle, technical
analysts will approach the triangle with caution. If prices don’t make breakout of the

trendlines before that point, the triangle begins to lose its potency and prices will

simply drift out beyond the apex with no surge in either direction.

2. Price Action – Unlike ascending and descending triangles which give advance

notice of their intentions, the symmetrical triangle tends to be a neutral pattern. The

symmetrical triangle is generally a stabilization pattern. This means an investor can

look to see the direction of the previous trend and make the basic assumption that

the trend will continue. However, many experts advise investors that, because the

breakout direction could go either way, they wait until the breakout occurs before

investing in or selling the stock.

In essence, a symmetrical triangle is a picture of hesitation.

3. Measuring the Triangle – To project the minimum short-term price objective of a

triangle, an investor must wait until the price has broken through the trendline. When

the price breaks through the trendline, the investor then knows whether the pattern is

a consolidation or a reversal formation.

To calculate the minimum price goal, calculate the height of the formation at its

widest part, the base of the triangle. Measure from the highest high point on one

trendline to the lowest low point on the opposite trendline. Both these points will be

located on the far left of the formation. Next, locate the peak of the triangle (the point

where the trendlines converge). Take the result of the measurement of the height of

the triangle and add it to the price marked by the apex of the triangle if an upside

breakout occurs and subtract it from the peak price if the triangle experiences a

downside breakout.
For example, working with a symmetrical triangle, assume the highest high of the

pattern occurs at 150 and the lowest low at 100. The height of the pattern is 50 (150

– 100 = 50). The peak of the triangle occurs at 125. The pattern has an upside

breakout. Using the measuring rule, the target price is 175 (125 + 50 = 175).

4. Duration of the Triangle – The triangle is a relatively short-term pattern. It may

take up to one month to form and it usually forms in less than three months.

5. Forecasting Implications – Once breakout occurs, the symmetrical triangle

tends to be a reliable pattern. The failure rates are ranging between 2% and 6% for

symmetrical triangles after a valid breakout.

6. The shape of the Symmetrical Triangle – The pattern should display two highs

and two lows, all touching the trendline. Meaning, a minimum of four reversal points

is necessary to draw the two converging trendlines.

7. Volume – Investors should see volume decreasing as the pattern progresses

toward the peak of the triangle.

At breakout, however, there should be a noticeable increase in volume. Like reversal

patterns, the volume is more important on the upside than the downside. Therefore,

an investor will be particularly interested in seeing an increase in volume on breakout

if the pattern is moving upwards.

8. Premature or False Breakouts – We can call them premature false breakouts or

false moves. The triangles are among the patterns most susceptible to this

phenomenon. Because the pattern can be either a reversal or continuation pattern,

investors are particularly susceptible to false moves or, at the very least, confused by

them. In addition, because volume becomes so tiny as the triangle formation

progresses to the peak, it takes very little activity to bring about an inconsistent and

incorrect movement in price, taking the price outside of the trendlines.

To avoid taking an inadvisable position in a stock, some investors advise waiting a

few days to determine whether the breakout is a valid one. Typically, a false move

corrects itself within a week or so. A key sign of a possible false move is low volume.

If there’s no pick up in volume around the breakout, investors should be wary.

Typically, a good breakout from a triangle formation will be accompanied by a

definite surge in volume.

There are situations, however, where a false move will occur with high volume.

These are the most dangerous variety of false moves. The only advice experts can

give to investors who fall prey to one of these false moves is to reverse their

positions as soon as they become aware of the true movement of the stock.

How can you trade this pattern?

Different trading strategies depending on whether you already have a position in the

stock or whether you do not have a position in a stock experiencing a triangle

formation. If an investor already has a position in a stock, he or she may be “locked”

into that position as the formation takes shape because it is not possible to

definitively predict which way the breakout will take the price of the stock. The key is

waiting and watching for a valid breakout before making an investment decision.

If an investor does not have a position in a stock, staying away from the stock when

it’s in the process of forming the triangle pattern is a good choice. Consider a

position when a dependable breakout has occurred.

After such a breakout, if on the upside, you should buy on the next reaction if the

major trend is up. If it is on the downside, sell short on the next rally if the major trend

is down

This pattern has a tendency to premature breakouts and false moves. To avoid

mistaking a false move for a valid breakout, experts advise waiting a few days to see

if the breakout is reliable.

Because premature breakouts (where prices close outside of the trendline) are so

common, don’t dismiss the pattern if it has experienced such a breakout. Premature

breakouts do not predict the final breakout direction or success or failure of the

formation.

Be wary of breakouts from triangles where the breakout does not occur until the

peak of the triangle. Experts maintain that the most reliable breakouts occur about

two-thirds of the way along the triangle.

 Symmetrical triangle
The symmetrical triangle pattern can be either bullish or bearish,
depending on the market. In either case, it is normally a
continuation pattern, which means the market will usually continue
in the same direction as the overall trend once the pattern has
formed.

Symmetrical triangles form when the price converges with a series

of lower peaks and higher troughs. In the example below, the
overall trend is bearish, but the symmetrical triangle shows us that
there has been a brief period of upward reversals.
However, if there is no clear trend before the triangle pattern forms,

the market could break out in either direction. This makes

symmetrical triangles a bilateral pattern – meaning they are best

used in volatile markets where there is no clear indication of which

way an asset’s price might move. An example of a bilateral

symmetrical triangle can be seen below.

Chart patterns summed up
All of the patterns explained in this article are useful technical

indicators which can help you to understand how or why an asset’s

price moved in a certain way – and which way it might move in the

future. This is because chart patterns are capable of highlighting

areas of support and resistance, which can help a trader decide

whether they should open a long or short position; or whether they

should close out their open positions in the event of a possible trend

reversal.
How to Trade Symmetrical
Triangles- Winning Strategies
Symmetrical Triangle Definition
A symmetrical triangle is the most common triangle chart pattern. It is comprised
of price fluctuations where each swing high or swing low is smaller than its
predecessor. This coiling price movement creates a structure of a symmetrical
triangle. As a symmetrical triangle is forming, trading activity diminishes along
the way until the apex of the triangle is reached.

Many technicians believe that if a stock is rallying prior to a symmetrical triangle,

the stock will eventually breakout to the upside. Conversely if a stock is falling
prior to a symmetrical triangle forming, the stock should continue lower. Both of
these assumptions are wrong. Symmetrical triangles provide little, if any
indication as to which direction the stock will ultimately breakout. Remember
from the above definition, there is a lack of volume and price movement which
creates a coiling pattern, therefore it is simply impossible to assess which way a
symmetrical triangle will inevitably breakout.

Symmetrical Triangle Breakout

There are two key components to a symmetrical triangle breakout: price and
volume. For a breakout to the upside, you want the stock to close decisively
outside of the triangle formation with a pickup in volume. Breakouts to the
downside also require a decisive price break of the formation, but the volume
does not need to display a significant increase in activity. If you notice a pickup
in volume on a breakdown, odds are it is a false signal and the stock will likely
reverse to the upside.
Symmetrical Triangle Breakout
Chart Example

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Above you see a classical example of a symmetrical triangle on a chart. If we

draw a horizontal line through the right edge of the triangle, we will divide its
angle into two equal parts. This is the requirement we need in order to confirm
this pattern on the chart. Also, notice that the lower level of the triangle starts
later than the upper level. In a real symmetrical triangle on a piece of paper, the
two sides need to be equally long. However, on a chart this is impossible. The
reason for this is that the stock price is unable to draw a top and a bottom at the
exact same time. After all, the x-axis on every stock trading chart refers to time.

Also, notice that the initial symmetrical triangle breakout on the image is bearish.
The price first breaks the lower level of the formation. However, the price then
switches directions and breaks the upper level of the triangle with a big bullish
gap which comes with the new trading day. This is a normal outcome when
trading triangles – especially the symmetrical triangle. After all, the direction in
which the triangle will break is unknown before the appearance of the triangle.
For this reason, if you see the price peeking through one of the levels, this
doesn’t mean that you have a breakout. In many of the cases it might be better to
wait for the price to develop, before concluding that there is a breakout.

Trading the Symmetrical Triangle

Pattern

As I said above, the trick is to catch the right breakout. After identifying the right
breakout, you then need to define the target and risk of the trade.

Identifying the Real Breakout

A great trading tool for spotting real breakouts is the volume indicator. The
reason for this is that real breakouts usually happen during high trading volumes
and high volatility. The fake breakouts appear during low volumes and they look
more like a range rather than a breakout. Since the levels of any triangle are
inclined, a ranging move sometimes brings the price outside the frames of
triangles. This way traders get lured that there is a breakout on the chart. Let me
show you how to spot real symmetrical triangle breakouts with the help of the
volume indicator.

Above is a 5-minute chart of General Motors from May 12, 2015 where a
symmetrical triangle developed over an entire trading day.

In the red circle we see a fake breakout. Notice that the volumes during this
breakout are relatively low and stay low over the next few periods. Later on we
see a bullish breakout when the trading volumes are increasing. This is the real
breakout which should be traded.

Symmetrical Triangle Target

the image below will help you understand the size of the symmetrical
triangle chart pattern. Every chart pattern you trade should “tell” you what
your target is for the trade. The reason for this is that chart patterns have a
target, which is well known to the more experienced traders. Remember
this: When you trade chart patterns, your minimum target equals the size of the
pattern itself. This is an important rule which should always be in your mind
when you trade chart formations. The symmetrical triangle formation is no
different.
In order to measure the symmetrical triangle size, you first need to extend the
shorter side to match the length of the other side. The size of the third side of the
triangle (which is missing) is the size of the price move you should pursue. If you
are getting confused,

Above is the 2-minute chart of Citigroup from April 14, 2016. The blue lines on
the chart form the symmetrical triangle. However, I have added an extension of
the upper level – the red line on the chart. This way, we can measure the third
side of the symmetrical triangle. Have a look at the arrow on the green area
between the two sides of the triangle. Its length is $0.46 (46 cents). We take this
length and we apply it right after we identify the breakout in the formation. This is
the minimum target we should pursue when trading the pattern. In this case it
appears that we have a symmetrical triangle reversal scenario.

Symmetrical Triangle Risk

Analysis (Stop Loss)

Since we know how to distinguish the real breakout from the fake breakout and
we already know our symmetrical triangle target, it is time to discuss the risks of
the trade.
You should always know the amount you are willing to risk before placing any
trade. If sometimes you need to risk more than you set into your trading plan,
simply do not take the trade and move forward to a better one. It acts the same
way with the symmetrical triangle stock pattern.

The proper location of a stop loss when trading symmetrical triangles is below
the opposite side of the breakout.

However, this level is inclined, right? The more you move the stop to the left, the
bigger the distance is between the stop and the entry price.

So, where should we place the stop? Here you need to apply some simple price
action rules. Have a look at the price action in the symmetrical triangle. If the real
breakout is bullish, place the stop below the lower level of the triangle, under a
bigger price bottom. If the breakout is bearish, place the stop loss above the
upper level of the triangle.

At the same time, try to pursue a win-loss ratio of at least 2:1. Have a look at this
image which will explain to you where to place your stop when you trade
symmetrical triangle patterns:
This is the same 2-minute chart of Citigroup. This time, I have included two stop
loss points on the chart. Notice the two black arrows below the lower level of the
triangle. They identify the last two bottoms, which are part of the support line of
the symmetrical triangle. These two levels are great points to place your stop
loss.

Our minimum profit target is $0.46 above the entry price, which is a 1.04% target.
The first stop loss is 0.28% below the entry price and the second stop loss is
0.45% below the entry price. If you choose stop loss (1) you will get the following
win-loss ratio:

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Else

1.04 : 0.28 = 1.04 / 0.28 : 0.28 / 0.28 = 3.71 : 1 win-loss ratio

This fulfills our 2:1 minimum win-loss ratio. If you choose the second stop loss
order, you will get the following win-loss ratio:

1.04 : 0.45 = 1.04 / 0.45 : 0.45 / 0.45 = 3.22 : 1 win-loss ratio

I will recommend you to use the second stop loss alternative in this case. The
reason for this is that it is more secure and it still fulfills the 2:1 win-loss
requirement of a good trade.

Full Symmetrical Triangle Trading

Strategy

Now we will combine all the information we discussed above into a profitable
symmetrical triangle trading strategy. We will enter the market on a real
symmetrical triangle breakout, placing a stop beyond the opposite side of the
triangle.

We will hold the trade until the price moves with a size equal to the size of the
triangle. After this target is completed, we will close 50% of the trade. If the trend
continues, we will hold the other 50% until the price breaks another swing point
on the chart.

I know all this sounds a bit confusing, so have a look at the image below which
illustrates this strategy.

Above you see the 10-minute chart of Boeing from Apr 5 – 6, 2016. The image
displays a symmetrical triangle with a downside target.

The blue lines frame the scope of the triangle. The red line is an extension of the
lower level, which help us to place the minimum target on the chart. The two
black arrows identify two relatively larger volume bars.

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the Right Way
The second big bar matches with the bearish breakout of the symmetrical
triangle. Therefore, we assume that the breakout is genuine and we short Boeing
based on our symmetrical triangle trading strategy.

The best place for a stop loss order is as shown on the image above. This is the
place above the third top of the triangle, above the upper level. This way we have
a 1.09% target while risking 0.47%. Let’s now calculate the win-loss ratio:

1.09 : 0.47 = 1.09 / 0.47 : 0.47 / 0.47 = 2.32 : 1 win-loss ratio.

With the target and the risk identified, we take in this trade we manage to attain
2.32 : 1 win-loss ratio. This fulfills the 2:1 minimum, which makes the trade
potentially favorable. After a 30-minute consolidation, Boeing’s stock price
begins decreasing. Eight periods after the price starts decreasing, Boeing hits
our minimum target accounting for a total decrease of 1.09%. Since our minimum
target is accomplished we close 50% of the trade.

Now we have the other half of the trade open in order to catch a potential
continuation of the bearish trend. However, with the next candle, the BA price
closes a dark cloud cover candle pattern, which is shown in the blue square on
the chart. This candlestick pattern has a strong reversal potential.

Based on the development of this reversal pattern, we close the other 50% of the
trade.

Let’s calculate the profit results now:

We catch 1.09% with the first half of the trade, which we close after the minimum
target reach. This means that the first part of the trade brings profit equal to:

1.09% / 2 = 0.60%

Now let’s calculate the second half of the trade. We don’t manage to catch a
further price decrease and we realize a safe exit based on the dark cloud cover
pattern. This way we avoid the bullish force which comes right after we close the
trade.

The total price move during the second half of the trade equals to 0.89%.
However, this is still only half of the trade. For this reason, we divide this
percentage by two.

0.89% / 2 = 0.45%

So, the total profit from the trade equals to 0.60% + 0.45% = 1.05%.

Conclusion

 The symmetrical triangle is a chart pattern, where a horizontal line through

the rightmost edge divides the angle into equal degrees.

 The breakout direction of the symmetrical triangle is unknown. For this

reason, we should be able to distinguish a real breakout from a fake
breakout.

 A great way to identify the real breakout is to use a volume indicator. Real
breakouts usually appear during high trading volumes. When the breakout
happens during low volumes, the move will likely not hold and reverse.

 The minimum target of every symmetrical triangle is as big as the size of

the triangle itself.

 In order to define the size of the triangle, you should extend the shorter
level, so it will be the same size as the other level. The distance between
the ends of the two levels is the potential size, which the price is likely to
accomplish after the triangle’s breakout.

 When you enter a trade based on a symmetrical triangle breakout, you

should put a stop below the opposite level to the breakout. Also, you
should conform the stop with one of the tops/bottoms on this level.
  When the minimum target is reached, close only 50% of the trade in order
to strike for a further price move in your favor. Then use a simple price
action rule to close the other half of the trade.

Symmetrical Triangle

The symmetrical triangle, which can also be referred to as a coil,

usually forms during a trend as a continuation pattern. The
pattern contains at least two lower highs and two higher lows.
When these points are connected, the lines converge as they are
extended and the symmetrical triangle takes shape. You could
also think of it as a contracting wedge, wide at the beginning and
narrowing over time.
While there are instances when symmetrical triangles mark
important trend reversals, they more often mark a
continuation of the current trend. Regardless of the nature of
the pattern, continuation or reversal, the direction of the next
major move can only be determined after a valid breakout. We
will examine each part of the symmetrical triangle individually,
and then provide an example with Conseco.

1. Trend: In order to qualify as a continuation pattern, an

established trend (at least a few months old) should exist.
The symmetrical triangle marks a consolidation period
before continuing after the breakout.

2. Four (4) Points: At least 2 points are required to form a

trend line and 2 trend lines are required to form a
 symmetrical triangle. Therefore, a minimum of 4 points are
required to begin considering a formation as a symmetrical
triangle. The second high (2) should be lower than the first
(1) and the upper line should slope down. The second low
(2) should be higher than the first (1) and the lower line
should slope up. Ideally, the pattern will form with 6 points
(3 on each side) before a breakout occurs.

3. Volume: As the symmetrical triangle extends and the

trading range contracts, volume should start to diminish.
This refers to the quiet before the storm, or the tightening
consolidation before the breakout.

4. Duration: The symmetrical triangle can extend for a few

weeks or many months. If the pattern is less than 3 weeks, it
is usually considered a pennant. Typically, the time duration
is about 3 months.

5. Breakout Timeframe: The ideal breakout point occurs 1/2

to 3/4 of the way through the pattern's development or time-
span. The time-span of the pattern can be measured from
the apex (convergence of upper and lower lines) back to the
beginning of the lower trend line (base). A break before the
1/2 way point might be premature and a break too close to
the apex may be insignificant. After all, as the apex
approaches, a breakout must occur sometime.

6. Breakout Direction: The future direction of the breakout

can only be determined after the break has occurred.
 Sounds obvious enough, but attempting to guess the
direction of the breakout can be dangerous. Even though a
continuation pattern is supposed to breakout in the
direction of the long-term trend, this is not always the case.

7. Breakout Confirmation: A break should be on a closing

basis for it to be considered valid. Some traders apply a
price (3% break) or time (sustained for 3 days) filter to
confirm validity. The breakout should occur with an
expansion in volume, especially on upside breakouts.

8. Return to Apex: After the breakout (up or down), the apex

can turn into future support or resistance. The price
sometimes returns to the apex or a support/resistance level
around the breakout before resuming in the direction of the
breakout.

9. Price Target: There are two methods to estimate the extent

of the move after the breakout. First, the widest distance of
the symmetrical triangle can be measured and applied to
the breakout point. Second, a trend line can be drawn
parallel to the pattern's trend line that slopes (up or down)
in the direction of the break. The extension of this line will
mark a potential breakout target.

In Technical Analysis of Stock Trends (1948), Edwards and

Magee suggest that roughly 75% of symmetrical triangles are
continuation patterns and the rest mark reversals. The
reversal patterns can be especially difficult to analyze and
often have false breakouts. Even so, we should not anticipate
the direction of the breakout, but rather wait for it to happen.
Further analysis should be applied to the breakout by looking
for gaps, accelerated price movements, and volume for
confirmation. Confirmation is especially important for upside
breakouts.

Prices sometimes return to the breakout point of apex on a

reaction move before resuming in the direction of the
breakout. This return can offer a second chance to participate
with a better reward to risk ratio. Potential reward price
targets found by measurement and parallel trend line
extension are only meant to act as rough guidelines. Technical
analysis is dynamic and ongoing assessment is required. In the
first example above, SUNW may have fulfilled its target (42) in
a few months, but the stock gave no sign of slowing down and
advanced above 100 in the following months.
Conseco (CNCEQ) formed a rather large symmetrical triangle
over a 5-month period before breaking out on the downside.

1. The stock declined from 50 in Mar-98 to 22 in Oct-98 before

beginning to firm and consolidate. The low at 22 was
probably an over-reaction, but the long-term trend was
down and established for almost a year.

2. After the first 4 points formed, the lines of the symmetrical

triangle were drawn. The stock traded within the
boundaries for another 2 months to form the last 2 points.

3. After the gap up from point 3 to point 4, volume slowed over

the next few months. There was some increase in volume in
late June, but the 60-day SMA remained in a downtrend as
the pattern took shape.
4. The red square marks the ideal breakout time-span from
50% to 75% of the pattern. The breakout occurred a little
over 2 weeks later, but proved valid nonetheless. While it is
preferable to have an ideal pattern develop, it is quite rare
for that to occur.

5. After points 5 and 6 formed, the price action moved to the

lower boundary of the pattern. Even at this point, the
direction of the breakout was still a guess and it was
prudent to wait. The break occurred with an increase in
volume and accelerated price decline. Chaikin Money
Flow declined past -30% and volume exceeded the 60-day
SMA for an extended period.

6. After the decline from 29 1/2 to 25 1/2, the stock

rebounded, but failed to reach potential resistance from the
apex. The weakness of the reaction rally foreshadowed the
sharpness of the decline that followed.

7. The widest point on the pattern extended 10 1/2 points.

With a break of support at 29 1/2, the measured decline was
estimated to around 19. By drawing a trend line parallel to
the upper boundary of the pattern, the extension estimates
a decline to around 20.

Symmetrical triangle
• The symmetrical triangle, which can also be referred to as a
coil, usually forms during a trend as a continuation pattern.
The pattern contains at least two lower highs and two higher
lows.

• These types of triangles can give breakout in both direction

depending on their existing trend where price action grows
increasingly narrow, may be followed by a breakout to either
side, up or down.

• Symmetric triangles are created when both trend lines are

converging towards each other.

• They indicate a period of congestion, represented by falling

resistance trend line or rising support trend line with a
horizontal support or resistance lines

• Symmetrical triangles can form within a small time frame or

even a larger time frame, therefore make sure that if you trade
symmetrical triangles, to check on the larger time frame
symmetrical triangles that may have formed.
• Symmetrical triangle break outs can find more validity when
accompanied by supporting candlestick price action patterns.

• The more price approaches the apex (where the trend lines
converge), the bigger the chance of a break-out. The triangle
pattern has completed when price breaks out of it, in either
direction. Conservative traders may look for additional
confirmation, of price action or indicators.
• One can wait for closing above break out point or closing
below break down point for 2 days, to enter in strong trend,
and stay away from fake breakout.

• Eventually, price breaks through the upside resistance and

continues in an uptrend. Buyers can then reasonably place
stop-loss orders below the low of the lower trend line.

Volume and Triangle pattern

Volume can also add further insight while trading these
patterns. Volume is invaluable when confirming any of the
three triangle pattern break out to upside or downside.

If volume isn’t present alongside patterns breakouts, then the

resulting trading signal isn’t as reliable. It is observed that
false or fake breakout of pattern is witnessed in absent of
volume while pattern completion. Nevertheless observing
volume, price action and indicators while breakout of triangle,
will keep trader away from fake break outs.

Conclusion
• Triangle patterns are a commonly used-technical analysis
tool and majorly a choice of breakout traders.

• The symmetrical triangle patterns are characterized by both

rising support trend line and a falling resistance trend line.

• One of the important criteria to bear in mind when trading

triangles is that there should be at least 4 points of reaction
within the triangle.

Symmetrical Triangle Trading

Pattern
Symmetrical triangle pattern is a continuation pattern that
offer breakout after the pattern is formed. If formation is
perfect for this triangle pattern and trade with right entry
offers good risk -rewards. The formation of pattern is depends
on some factors:

Trend line : Since this is a continuation pattern, stock needs

to have a previously established trend. Without the previous
established trend, this pattern would be reversal pattern.
Reversal pattern has a lot of false breakout. One should be
careful before trade triangle whether breakout is real or false.

Triangle formation: For triangle formation, we need at least

4 points. 2 points on the upper line and 2 points to the lower
line. In the above chart, we defined A,C,E in the lower trend
line and B,D,F for upper trend line.

Duration: Generally, Symmetrical triangle needs more than 4

weeks or more than one moth time period. If its duration is
less than 3weeks period, sometimes called it pennant.
Volume : volume is very important during the formation
period. Usually volume is dry up during the formation and
breakout with very strong volume.

Price Target

This pattern has 2 price target. Target 2 is max distance

between point A and B. In the above graph, Target is Point H
from F which is equivalent to max distance between A&B.
Target 1 is point G from point F

Trade Setup

Here we used the Ford stock for bullish triangle chart pattern
and how to entry to this bullish chart pattern and when to
exit this triangle chart pattern,
Entry To The Triangle Pattern Trade

This pattern entry occurred after stock broke the upper trend
line with big volume. Higher the volume with very strong
Green Candle at trend line break, better the performance of
the symmetrical triangle pattern. In the chart, Entry is above
the high of breakout bar at 14.82. First price target is at point
G and second price target is H.

EXIT 1 For Triangle Pattern:

If stock failed to move up after the break out and came back to
the upper trend line a nd also closes below the upper trendline
of the pattern that is a warning sign for the trade. Trader
should think about the exit. The first exit should be below the
breakout bar at price 14.30. if price break this point, that
means breakout is not valid or stock needs more time for this
breakout. Conservative trader can leave the trade after stock
went down below the breakout green candlestick. Again if
stock hits the upper trend line of the pattern but it’s not close
below the trend line, this indicate stock is really strong and no
reason to leave the trade

Exit 2 for Triangle Pattern

If stock breached the upper trend line but its not broke the
lower trend line or still holding above the lower trend line,
trader can still hold his position. However, if stock broke the
lower trend line and closed below the trend line, trader should
definitely leave the trade. This indicate continuation pattern is
completely broken and stock may move down further as a
reversal pattern. Exit point should be at price 13.87.
Example of some Symmetrical Triangle Chart
 Ascending Triangle:
 The ascending triangle is a bullish ‘continuation’ chart pattern that signifies a
breakout is likely where the triangle lines converge. To draw this pattern, you
need to place a horizontal line (the resistance line) on the resistance points
and draw an ascending line (the uptrend line) along the support points.

 The ascending triangle is the bullish variant of the two triangle patterns. It only

forms during up-tends or up-swings and is always seen as being a signal the

current move is going to continue. The straight edge of the ascending triangle is

a support level, and this level stops the market from moving lower during the time

the pattern is forming.

Here's what an ascending triangle pattern looks like on a chart.

 The ascending triangle is a bullish continuation pattern which signifies the

continuation of an uptrend. Ascending triangles can be drawn onto chats

by placing a horizontal line along the swing highs – the resistance – and

then drawing an ascending trend line along the swing lows – the support.

Ascending triangles often have two or more identical peak highs which

allow for the horizontal line to be drawn. The trend line signifies the overall

uptrend of the pattern, while the horizontal line indicates the historic level

of resistance for that particular asset.

 The ascending triangle is a bullish pattern, which gives an indication that the

price of the security is headed higher upon completion. The pattern is formed

by two trendlines: a flat trendline being a point of resistance and an ascending

trendline acting as a price support. The price of the security moves between

these trendlines until it eventually breaks out to the upside. This pattern will

typically be preceded by an upward trend, which makes it a continuation

pattern; however, it can be found during a downtrend.

 Figure 2: Ascending triangle

As seen above, the price moves to a high that faces resistance leading to a sell-off to

a low. This follows another move higher, which tests the previous level of resistance.

Upon failing to move past this level of resistance, the security again sells off - but to

a higher low. This continues until the price moves above the level of resistance or

the pattern fails. The most telling part of this pattern is the ascending support line,

which gives an indication that sellers are starting to leave the security. After the

sellers are knocked out of the market, the buyers can take the price past the

resistance level and resume the upward trend. The pattern is complete upon

breakout above the resistance level, but it can fall below the support line (thus

breaking the pattern), so be careful when entering prior to breakout.

From Tradingview.com

Ascending triangles are classified as continuation Patterns. Here are

the key elements that make up an ascending triangle:

1. Bottom Trend Line (Support)– An ascending triangle is characterized by

a bottom trend line that is formed as the price continues to set higher lows.

The more touch points on the trend line , the more reliable it will be.

2. Horizontal Resistance Line – An ascending triangle also contains a flat

horizontal resistance line that is formed as the stock continues to reject its

previous highs (for a given period). Once again, the more touch points on the

resistance line, the more reliable the pattern will be.

You must be wondering how the chart pattern get to be formed?

What happens during the formation of an ascending triangle is that there is a

certain level that the buyers cannot seem to break (red resistance line).

However, as evidenced by the higher lows (green uptrend support line),

buyers will gradually push the price up, hence we end up with an uptrend of

higher lows.

As buyers and sellers keep putting pressure, a breakout will become

inevitable.

Though a price breakout is inevitable, the big question is, “Who will break

the price, buyers or sellers? Will the buyers be able to break

that resistance level , or will the resistance be too strong?”

Well, the answer is, most of the times the price will break the resistance

area and go up.

However, it is not always the case, sometimes, the resistance is too strong

for buyers to break.

Now let’s look at its inverse, the DESCENDING TRIANGLE CHAT PATTERN

In a descending triangle chart pattern, as can be seen on the BTCUSD chart

above, there is a string of lower highs which forms the upper line (red

resistance line). The lower line is a support area (green horizontal line) in

which the price seems to be failing to break.

Just as with ascending triangles, most of the times, the price will break the

horizontal support line, and continue with the move lower.

Follow me closely as we will now ‘investigate’ the PSYCHOLOGY behind

ascending triangles:

To make the analysis easier, let’s think of the ascending triangle pattern as a

visualization of an ongoing battle between the bulls (buyers) and the bears

(sellers).

The bulls keep pushing the stock up in price until they get overpowered by

the bears/sellers at the horizontal resistance level .

It is at that resistance level that bears/sellers attempt to push the price down.

Though sellers are somehow successful in pushing the price down, they are

however unable to push the price to the previous low levels, as bulls/buyers

are persistent, and the price sets a higher low (bottom trend line ).

This pattern continues until the price action becomes confined to

the vertex of the triangle, representing a pivotal moment in this battle. At

this point, either the bears will win, and the BTC will break the bottom trend

line , or the bulls will win and break the horizontal resistance line.

If history is anything to go by, this pattern favors the bulls, and if the

horizontal resistance line is broken, the bulls will be able to push the price up,

triggering a breakout.
How do you trade the Ascending and Descending Triangle?

That's the question, right?

For me, a very simple general rule is this:

You look for an Ascending Triangle in an uptrend.

And you look for a Descending Triangle in a downtrend.

Basically, you long ascending triangle in an uptrend, and you short descending

triangle in a downtrend.

Let me share with you with a few examples:

So, can you imagine the thought process of a trader who is

unaware of reading price action?

They may think:

“Oh! Price is at resistance, I should be short!”

And so, they go short, and where would they put their stop loss?

Well, the textbook says, just above the high.

With enough traders shorting the market, there is a cluster of

stop-loss built up over the area of resistance.

And this is a sign of strength as you see lower highs coming into

resistance!

This tells you that buyers are willing to buy at these higher prices!

On top of that, you have those momentum traders piling into the

trade going long on a breakout.

And then, the market breaks up higher.

Now…

Imagine if the order flow that is in your favor:

 Stop loss getting triggered. This becomes a buy order

because if your stop loss gets hit when you are short, your

stop loss is basically a buy order to get you out of the

market.

 Traders want to break out. When they see the market

breaking above the highs, they will also go long, which

creates a huge demand for higher prices.

Now, I'm going to walk you through how you can go about setting

your stop loss, entries, and exits.

There are a few ways to do it…

Entries

You can either look to go long on the break of the highs, or you

can look to get long when the market breaks and close above the

resistance level.

There's really no right or wrong to this.

Here’s what I mean:

Stop Loss
As for stop loss...

I typically recommend looking at the nearest structure low and

give it some buffer below it.

You can use an indicator like the Average True Rage and set it 1

ATR below it.

Why do you want to give some buffer?

It's because you don't want a market to come down, spike you up,

and then continue trading higher.

So, give it some buffer, and give your stops more room to

breathe.
But when the market breaks and closes below the nearest

structure low, chances are this pattern is invalidated, and you

don't want to stay in this trade any longer.

This is how you can go about with your entries and your stop loss.

Take Profit
Again, there are two ways you can go about it.

For taking profits, the first thing that you can do if you want to have a fixed target is

that you can actually measure the move from the swing high to the low.

Here’s an example:

An alternative approach that you can do if you want to trail your stops, is by using a

moving average.

For example, you can use a 20-period moving average.

You can trail your trade as the market trades higher and you only exit if it closes

below it.

Here’s an example:

Whether you only use 20, or 50-period moving average, there's

no right or wrong.

20 MA would keep you in with the short-term trend.

The 50 MA would keep you in with the medium-term trend.

It really depends on how long or how short of a trend that you

want to ride.

Here's another example:

Can you spot the ascending triangle pattern?

You can see higher lows coming into this resistance and you can

see that this is pretty much a losing trade.

It basically got you into the trade, you long the breakout, and

collapses under which you got stopped out.

Nothing that I share on my YouTube, my blog, website, or

anything, is 100%.

It's all dealing with probabilities.

So, always manage your expectations that there will be winners

and there will be losers.

And finally, another example I want to share is the opposite:

It is descending triangle in a downtrend.
You can see lower highs coming into support.

So again, how could you have traded this pattern?

You can look to place a sell stop order just below the lows or wait

for the market to break in close below this support before you get

short.

For the stop loss, you want to reference from the nearest swing

high.

Because if the market can break in close above this

downward trend line, chances are this pattern is invalidated and

you don't want to stay in the trade any longer.

Where do you set your target?

Again, I mentioned that there are two ways:

1. Take the distance from the high to the low. So, if the distance

from the high to the low is 500 pips, your projected target is 500

pips.

2. Trail your stop loss. Use a moving average, like the 20 or the

50 depending on the type of trend that you want to capture.

If you let your winners run, there will be small winners and small

losses.

But there will be a few times, possibly one in ten trades where

you catch a big move and the market just keeps on trending over

a long period of time.

Let’s do a quick recap…

Recap
 An Ascending Triangle is basically higher lows into

resistance, and the Descending Triangle is lower highs into

support.

 The reason why this pattern work is because there is order

flow at the other end of the market structure.

 If you want to trade with this pattern, trade with the trend for

better odds, right? After all, the trend is your friend.

  You can either look to long on the break of the highs, or you

can wait for a close after the market breaks out of

resistance.

 For stop loss, I typically reference from the nearest swing low

and give it some buffer.

 When is this pattern invalidated? It's when this upward trend

line, gets broken, so the pattern is invalidated.

 As for Exits, you can use a price projection or calculate that

distance from the highs to the lows, and this is where you
could consider taking your profits.

What is Ascending Triangle Pattern

The ascending triangle formation is a continuation pattern and as the name suggests

it has the shape of a triangle. The ascending triangle is also known as the bullish

triangle because it leads to a bullish breakout.

The triangle chart pattern is generally considered a bullish pattern.

Note*: the reverse of an ascending triangle is the descending triangle also known as the

bearish triangle.

How the ascending triangle looks like:

The first element of this price pattern is an upward sloping trendline followed by a flat

top.

This shows that the market has tried multiple times to break the resistance top but it

couldn’t. Hence, we have developed a resistance line.

 The second element of the ascending triangle is a slanting or a rising

trendline moving upwards. This is what makes the pattern bullish.

See the chart below:

Remember that all continuation patterns like the bullish flag, rectangle pattern, and

many others that you can find through our Trading Strategy Guides website, need to

have a context of a trend.

Ascending Triangle Pattern in

Downtrend
So far we have seen how to trade ascending triangle within an uptrend but when the

ascending triangle pattern develops within a downtrend we have two possible trade

scenarios:

1. A continuation of the downtrend

2. Or, it can signal an imminent market reversal

If the flat resistance line is broken, the ascending triangle pattern can signal an

upcoming trend reversal. In this case, we can expect a change in the trend, from

bearish to bullish.

Here is an example:

Unlike in an uptrend, when the ascending triangle pattern develops within a

downtrend it’s more likely to signal a reversal than a continuation.

In this case, we apply the same trading rules (entry and exit) as we would with the

ascending triangle pattern within an uptrend.

Now…

There is also the possibility for the ascending triangle to play out as a continuation

pattern.

Let me explain:
The top of the ascending triangle pattern can actually hold because the prevailing

trend is downward. So, in a downtrend, the resistance level has a bigger chance to

hold while the support level gets broken.

To act as a continuation pattern within a downtrend, the upward sloping trendline of

the ascending triangle must be broken.

A short trade is triggered once we break below the upward sloping trendline.

See an example below:

One advantage of this type of continuation play is that you’ve got to use a very tight

stop loss. Naturally, the stop loss goes above the flat resistance line.

Next, we’ll jump to a simple breakout trading strategy that will teach you how to

identify and trade the ascending triangle formation.

How to trade Ascending Triangle Pattern

Now, let's go through some stuff that will make the triangle pattern easier to be

understood.
You really need to think in terms of what’s going on behind the scene. We don’t like

just to look at the price, but also at what the market participants are doing.

When the price is moving up, it starts to develop the classical higher lows. For

whatever the reasons may be buyers become a little bit more aggressive with each

new successive higher low. Or, we can say that the sellers aren’t too aggressive

when the market turns down inside the ascending triangle chart pattern.

Whichever side of the coin it is, that is what it’s causing the triangle price formation to

develop.

When we reach the climax point of the triangle where the price has nowhere to go,

that’s the moment when we should anticipate a breakout.

Once the triangle breakout happens we need to see a pick up in volume that will

result in a nice long trade.

The location of the pattern is also important!

If the triangle pattern is inside of a big trading range, then the solid resistance level

might not be that significant. However, if the ascending triangle price formation

develops in the middle of a bullish trend, that would add more weight to the pattern.
Ascending Triangle Trading Strategy
The ascending triangle trading strategy is an easy method to capture breakouts

inside a trend. In order to confirm the breakout, we’re going to use the RSI tool which

is a momentum-based indicator.

Since the price usually contracts inside the ascending triangle pattern, at one point

either the bulls or the bears must win. With the RSI indicator in our trading arsenal,

we can determine in advance who is going to win this battle.

How does it work?

Let’s get it step-by-step:

Step #1: The Ascending Triangle must Have a Flat Resistance and a Rising

Support Trendline

The two elements of a good ascending triangle pattern are:

 A flat resistance that it’s hit multiple times. The more a resistance line is tested, the

more likely it will eventually fail to hold as the resistance level.

 The second element is a rising support trendline that connects the successive higher

lows inside the ascending triangle formation.

See the ascending triangle chart below:

Now, before buying the breakout we need to check one more thing.

See below:

Step #3: Check if prior to the Ascending Triangle we have a bullish trend

As a continuation pattern, naturally we need a preceding trend. In the case of the

ascending triangle, which is a bullish pattern, we need to have a prior uptrend.

If we have a prior uptrend, it suggests that the breakout has a higher probability to

happen on the upside.

See the ascending triangle chart below:

The last step is to define our entry trigger point and to measure our profit targets.

See below:

Step #4: Buy as soon as we break above the flat resistance level

With continuation patterns, the best strategy is to buy straight away with the

breakout. If we wait too much we end up leaving some of the available profits on the

table.

We already have so many confluence factors that confirm the breakout that it’s

useless to wait for more confirmation. After all, we want to anticipate the breakout

and be ahead of the crowd.

For the take profit strategy, we’re going to use our favourite measuring technique.

This is a dynamic strategy that it’s based on the actual price rather than a random

number.

To find the profit target, simply take the high and the low of the ascending triangle

formation and add that measurement to the breakout level. This will give you the

ideal target for this continuation pattern.

FAQ - Ascending Triangle Pattern
Is ascending triangle bullish?

Yes, the ascending triangle is a bullish chart pattern that develops during an uptrend

and signals an upside breakout. The bullishness of this pattern comes from the

squeeze between the ascending trendline and horizontal resistance line which

ultimately will force the break out of the pattern.

Is ascending triangle good?

The ascending triangle is a good chart pattern as long as it develops within an

uptrend. As a continuation pattern, you have the advantage of trading in the direction

of the prevailing trend. Additional benefits include a clear entry point and profit target.

What does an ascending triangle indicate?

The ascending triangle indicates a period of consolidation where the supply and

demand forces are apparently at equilibrium. As price gets squeezed towards the flat

upper resistance, the bulls get stronger.

Can ascending triangle be bearish?

Yes, in some instances a breakout of the ascending trendline can produce a bearish

signal. However, generally, the ascending triangle is a bullish price formation that

occurs within an uptrend. If it develops within a downtrend it can be considered a

bearish continuation pattern.

When should I buy ascending triangle?

You should buy the breakout of the horizontal resistance trendline. For a more

conservative entry, you can also wait for a break and close above the resistance

before you enter the market. This will protect you in case of a false breakout.
Conclusion – Ascending Triangle Formation

The ascending triangle formation is a very powerful chart pattern that exploits the

supply and demand imbalances in the market. You can time your trades with this

simple pattern and ride the trend if you missed the start of the trend.

Many technical analysts trade the breakout without first taking the time to understand

what goes behind the scene. With the ascending triangle, we can have a perfect

head start, and see the trading opportunity before it happens. So, being able to

recognize the ascending triangle pattern can be a valuable tool that you can use to

identify profitable trades.

The Ascending Triangle

The Ascending Triangle is a technical analysis chart continuation pattern

that consists of 2 trend lines. One being a horizontal trend line at a level

of resistance, which is classified as no fewer than two highs, and with the

second being a trend line to the upside on the lower side of the pattern,

which connects a series of higher lows.

Formation: The ascending triangle begins to form when the price action

takes an orderly decline, forming a higher low. The price then rallies to the

prior high and hits resistance. A second pullback then occurs and the

stock forms another higher low. This may occur over and over until a

series of equal highs and higher lows are formed.

Tip for Trading: Technical analysts are aware and understand that

ascending triangles can be much stronger of a pattern when the initial

high that starts the pattern is at an all time or (52 week) high. Most

traders will typically open long positions when price action breaks above

the upper resistance line.

Identifying an Ascending Triangle

Trend Established: As with any other continuation pattern there must

be an established trend to continue. Within a downtrend or uptrend,

ascending triangles build once a short term established uptrend. This

creates the ascending support line. I once read that up to 75% of all

ascending triangles breakout in the direction of the overall trend, which

leaves only roughly 25% that could be potential reversals. Further

investigation with the RSI, MACD, Moving Averages, and other indicators

can be conducted to determine the potential for continuation or reversal.

Here is an example using $DAL:

Equal Highs: A trendline is established when the price has created equal

highs. You can identify the location of the overhead resistance line based

on those highs. At least 2 equal highs should be present for reference

points in order for a trend line to be formed.

Higher Lows: There will be pullback points to create the uptrend with

higher lows. This is where the price bounces off of the resistance line and

retraces to a lower level. When pullbacks create higher lows, a new

support trend line is established. This gives the ascending triangle it’s

shape.
Volume: As the price range narrows, the volume typically decreases.

Support Line: The trend line supporting higher lows

Resistance Line: The trend line resisting equal highs

Ascending Triangle Breakout

The breakout is the confirmation that price action will continue to the

upside or downside based on it’s break of the support or resistance trend

line. The price still needs to close for that time frame for confirmation of

the break. A serge in volume is further confirmation of the break. You may

also see the price retest the original support line, as with the example

shown below on $DAL.

Breakout Confirmation: An important strategy to note, is to only buy (or

short) the breakout if it breaks in the same direction as the overall trend.

Overall, the ascending triangle is typically a continuation pattern. A

breakout to the downside in an ascending triangle that is within an overall

uptrend could easily result in a rectangle/sideways price action. This

catches some traders on the wrong side of the trade.

Executing the Trade

Entry Signal: A trade entry signal is when the price breaks out of the

ascending triangle in the direction of the overall trend. Any break before

the 66% mark of the pattern is most likely a false break. Near-apex

breakouts typically lack momentum and have a higher probability to

reverse.
Projected Price Target: You can estimate a price target of an ascending

triangle by taking the widest part of the triangle and adding it to the point

of the breakout.

Stats
Probability of upside exit = 70%
Average rise in price on upside exit = 35%
Probability of downside exit = 30%
Average decline in price on downside exit = 19%
Probability of reaching price target = 75%
Probability of false breakout = 25%
Touches – Price must touch each trend line twice in order for pattern to be valid.
 What is an Ascending Triangle
chart pattern and why does it
work
The Ascending Triangle is a bullish chart pattern that signals the

market is about to head higher.

Here’s how it looks like:

As you can see, the Ascending Triangle has a series of higher lows

approaching Resistance.

This is a sign of strength for 3 possible reasons:

1. The buyers are willing to buy at higher prices

2. There is lack of selling pressure

3. Buy stop orders are clustered above Resistance

I’ll explain…

1. The buyers are willing to buy at higher

 prices

Here’s the deal:

If the buyers are not willing to buy at higher prices, you won’t see

higher lows coming into Resistance.

The fact the market can form a series of higher lows tells you that

there is demand even as the price continues higher.

2. There is lack of selling pressure

Now if there’s strong selling pressure, the price shouldn’t remain

at Resistance for long. Instead, it should move lower quickly.

But, if the price is still hovering near Resistance, it means there’s

lack of selling pressure even though it’s at an “attractive” level.

3. Buy stop orders are clustered above

Resistance

And that’s not all…

Because as the price re-test Resistance, more traders will look to

short the market and place their stop loss above Resistance.

But what if the market breaks out higher?

Well, these buy stop orders will be triggered and it fuels further

price advance.

Pro Tip:
The Ascending Triangle is one of the three triangle chart patterns

out there.

The other two are the Descending Triangle

Pattern and Symmetrical Triangle Pattern.

Now before you trade the Ascending Triangle chart pattern…

Don’t make this common mistake when

trading the Ascending Triangle chart pattern

(that most traders never realize)

Now according to most trading textbooks, they’ll tell you to

go short when the price is at Resistance, right?

But here’s the deal…

Not every Resistance level is meant for shorting because you

must watch how the price approaches it.

Here’s an example…
Let me ask you…

Is this a good time to go short?

No.

Because you’ve learned that higher lows coming into Resistance

(an Ascending Triangle) is a sign of strength.

This means the market is likely to breakout higher. And the last

thing you’d want to do is go short.

Does it make sense?

Great!

Because in the next section, you’ll learn when is the best time to

enter a trade when trading the Ascending Triangle chart pattern.

How to time better time your entry using 1 of these 3 techniques

There are 3 ways to do it:

1. Stop order
 2. Break and close

3. Re-test of trendline

Let me explain…

1. Stop order

This approach goes long when the price trades above the highs of

the Ascending Triangle.

All you need to do is place a buy stop order and you’ll

immediately be long when the price trades above the highs.

An example:

Pros: This is one of the best prices to enter if the breakout is real.

Cons: It might be a false breakout.

2. Break and close

This is similar to the previous approach.

The only difference is you wait for the price to break and close

above the highs.

Here’s what I mean:

Pros: It reduces the likelihood of a false breakout.

Cons: If the momentum is strong, you’ll enter your trade at a

much higher price.

3. Re-test of trendline

If you’re an advanced trader, you can even enter the breakout

before the breakout.

How?

By going long when the price re-tests the trendline (of the

Ascending Triangle).

An example:
Pros: Favorable risk to reward on your trade if the market does

break out.

Cons: The market might not breakout.

This is great stuff, right?

And that’s not all because in the next section…

You’ll learn how to set a proper stop loss because the last thing

you want is to get stopped out of your trade only to watch the

market breaks out higher.

Read on…

How to set a proper stop loss so you don’t

get stopped out “too early”

Now it doesn’t matter whether you’re trading the Ascending

Triangle, breakouts, pullbacks, and etc. because the concept

is the same.
Your stop loss must be at a location where if reached, will

invalidate your trading setup.

This means if the market hits stop loss, you automatically

know you are wrong.

So look at the chart below and ask yourself…

Where should you put your stop loss?

A – This isn’t a good level as the price is within the Ascending

Triangle

B – This is an ideal place to set your stop loss because if the

market reaches it, you know the Ascending Triangle pattern

is “destroyed”.

Moving on…
Where to exit your winning trades for

maximum profits

So…

You’ve identified an Ascending Triangle chart pattern.

You long the breakout and the market moves in your favor.

Now you’re wondering:

“How do I exit winners?”

Well, here are 2 techniques you can consider:

1. Trailing stop loss

2. Price projection

I’ll explain…

1. Trailing stop loss

The idea of a trailing stop loss is this…

You’ve no idea how long the trend will last. So you trail your stop

loss and “lock-in” your gains as the market moves in your favor.

So how do you trail your stop loss?

Well, you can use an indicator like Moving Average.

Here’s how:

If you are long, then you can trail your stop loss using the 50-

period moving average.

This means you’ll hold your position until the market breaks and

close below the 50-period moving average.

Here’s what I mean…

Some of you might be wondering:

“But why the 50-period moving average?”

Look:

There’s nothing magical about the 50-period moving average.

A better question is to ask is…

“What type of trends do I want to capture?”

For long-term trend, you can use the 200-period moving average.

For short-term trend, you can use the 20-period moving average.

Now if this technique is not for you, then you can check out…
 2. Price projection

This is a classical charting principle technique to project where

the price will exhaust itself.

It can be used on chart patterns like Ascending Triangle, Head &

Shoulders, Double Bottom, and etc.

So here’s how it works for an Ascending Triangle chart pattern:

1. Calculate the width of the Ascending Triangle (from the high

to low)

2. Add this amount to the breakout level and that’s your price

projection

An example…

But…
One of the issue with price projection is the market can almost hit

your target profit, and only to do a sudden reversal.

Sometimes, it can even reversal all the way back and hit your

stop loss.

So, what should you do?

Trailing stop loss and price projection

combo

Well, you can combine both techniques!

This means if the market moves in your favor but it hasn’t

reached your price projection level, you can utilize a moving

average to “lock in” your open profits.

So, even if it does a sudden reversal, you still “protect” what you

have and not give everything back to the market.

Frequently asked questions

#1: What should I do if the ascending triangle is forming

against the trend?

I would caution against going long because after all, that would be

trading against the direction of the trend. I would expect the

market to breakdown lower and so I’ll look for trading

opportunities on the short side.

#2: Can I use the ascending triangle pattern for both

trend continuation and trend reversal?

Yes, you can. But for trend reversals, you want to have a longer

duration for the ascending triangle pattern to form, ideally 100

candles.

Conclusion
So here’s what you’ve learned today:

 The Ascending Triangle is a powerful chart pattern that

exploits the stop loss of losing traders

 Don’t short the market if you spot an Ascending Triangle

because the market is likely to move higher

 You can time your entries by using a buy stop order, waiting

for a break and close, or a re-test of trendline

 Your stop loss should be placed at a level where if the

market reaches it, the Ascending Triangle chart pattern will

be “destroyed”

 You can exit your winning trades using a trailing stop loss,

price projection, or a combination of both

Ascending Triangle Chart Pattern
And ascending triangle pattern looks like this chart shown below:

And this is how a real chart looks like:

 is Ascending Triangle Pattern Bullish Or Bearish?
It is considered a bullish continuation pattern in an existing uptrend.
So when you see this forming in an uptrend, expect a breakout to the
upside.

However, it can also be a strong reversal signal (bullish) when you

see it form in a downtrend.

Stop Loss Placement Options

You can use the strategies given in symmetrical triangle.
Take Profit Options
I prefer to target previous resistance levels as my take profit target.

Or as shown on the chart below, you can use the “x” pips distance as
your take profit target. Another way to do it would be say 3 times the
“x” pips or 2 times the “x pips” distance. That should give you your
profit target level(s).
How to Trade Ascending Triangles
Step: 1 Identify the pattern
Of course, first of all, we need to identify that an ascending triangle is forming,
which may be hard as the pattern yet hasn’t taken its full form.
Typically we demand that there must be a minimum of two highs and two lows, to
be able to draw the lines that make up the triangle itself. However, the more
highs and bottoms that can be connected with a line, the more certain we can be
that there really is a triangle worth watching.

Step 2: Wait for a breakout above the upper trend

line
 Ascending Triangle Breakout

he next step is to wait for a breakout above the upper resistance level, which
traditionally is viewed as the buy signal.
However, false breakouts are common and you shouldn’t act solely on a move
past the breakout level. Many times the market will just fall back, and get back
into the body of the triangle.
To reduce the impact of false breakouts, many traders choose to add some
distance to the breakout level. That way the market is given room to move, which
means that it is less likely that the market gets past the breakout level due to
random market movements.
Another technique that’s used quite often is to wait for the market to return back
to the breakout level to see if it holds or not. If it reverses around that level, many
traders will choose to go long, since the market shows that it respects the
breakout level and now is ready to continue upwards.
The image below shows how the market first breaks out above an ascending
triangle, and then falls back to the breakout level before it finally takes off again.

Breakout and Retest

Step 3: Stop Loss and Profit Targets

Many trading patterns have estimated price targets for both stop losses and profit

targets, and the ascending triangle is no exception.

 When it comes to the profit target, traders usually place it around a distance

from the breakout level that’s equivalent to the widest distance of the triangle.

 When it comes to the stop loss, it’s common to place it slightly under the

breakout level, to give the market some room to move and avoid false

breakouts.
The image below shows the placement of the stop loss and the profit target.

Triangle Profit Target Stop loss

Of course, these rules are not set in stone, and you may choose an approach
that works better for you. Just remember that you most of the time should strive
to keep a risk-reward ratio of 2:1 or more, meaning that a positive outcome
results in twice the profit of a negative outcome.

How to Improve Triangles

Having covered how you can go about to trade the ascending triangle pattern, it’s
time to look at three techniques that can be useful when it comes to reducing the
chances of acting on false breakouts.
1. Gaps
Gaps show us that the market is moving a lot between sessions, which usually
indicates that there is a lot of momentum in the market. They may also be used to
get a sense of whether buying or selling pressure is dominating at the moment.
For instance, if most gaps are positive, it may be a sign that the coming breakout
will be positive as well.Sometimes you’ll see that the market gaps past the upper
line of the ascending triangle. Generally, such behavior signals strength which
adds to our positive view on the market.
 2. The Length of the preceding trend
As we mentioned earlier in the article, the significance and length of the
preceding trend can have quite an impact on the probability of a positive
outcome. If the market has been trending upwards for a long time, it’s more likely
that we’ll see a positive breakout than in those cases where the trend has just
started.

3. Volume
In addition to the standard volume filter which demands that we see decreasing
volume as the ascending triangle forms, you might also want to impose an
additional volume filter.
One way could be to look at the volume of positive days relative to that of
negative days. Preferably we’d like to see that positive days are formed with
more volume than the negative days, which indicates that bulls seem to be
stronger than bears.

Ascending Triangle VS Pennant

Those of you who know about the pennant pattern may have noticed that the
ascending triangle, although not completely similar, indeed does resemble the
former. And while both indicate the same thing about the market, there are two
main differences.
1. The most obvious difference is that the pennant preferably should have two

lines that converge. In contrast, an ascending triangle has an upper line that’s

horizontal.

2. The second difference is the time both patterns take to form. While a pennant

usually forms during a time period of just a few days, the ascending triangle

may take several weeks or even months to form.

Although these two patterns aren’t the same, you’ll find that they’re used

interchangeably in many cases. Especially when the length of the pattern is

around 1 -2 weeks, which is around the time when a pennant starts to be seen as

a triangle by many market participants.

Ascending Triangle VS
Symmetrical Triangle

Triangle Patterns
The ascending triangle belongs to a family of three triangle patterns, which are:
 Ascending triangles(as covered in this article)

 Symmetrical Triangles

 Descending triangles

Here are the main differences between the patterns. If you’re interested

in learning more about each, you may read more in the articles that are

hyperlinked below:

The descending triangle is the opposite version of the ascending

triangle both in meaning and appearance. This means that it has a

horizontal lower line, which is accompanied by a declining higher line.

A symmetrical triangle consists of a series of lower highs and higher

lows, meaning that both the upper and lower lines are sloping towards

another. As to the meaning, it’s a neutral formation which means that the

meaning is dictated by the direction of the final breakout.

What’s the Success Rate of the

Ascending Triangle?
Sometimes you’ll find some statistics regarding the success rate of the

ascending triangle. And while these could provide valuable insights into

how the pattern works, there are some aspects that you need to keep in

mind.

Here they are:

1. The definition of a triangle: Creating a rules-based definition of a

triangle isn’t that easy if you want to do a proper backtest. Depending

on the exact definition used, the results may vary quite a bit. The

situation doesn’t get better if you choose to count triangles manually

either, since the hindsight bias very well can make you skip triangles

you would have taken in live trading.

2. The Timeframe: All timeframes aren’t equal. You’ll find that different

types of patterns work well on different timeframes.

3. The Market: The same as above applies even more to the market.

Most times you cannot trade the same strategy on several markets,

which means that you need to tailor your approach to the conditions

of the market you’re focusing on.

In other words, be sure to look closer at the methods that have been

used to come up with statistics regarding the performance of any

pattern. It may fluctuate quite a bit depending on the method and

definition!

Ascending triangle
An ascending triangle occurs when the swing lows are rising, but
the swing highs end at the same level.
It can be shown by placing a horizontal line across the swing highs
and drawing a rising trend line across the swing lows. Thus, the
pattern is formed against a horizontal resistance but has a rising
support level.
When occurring in an uptrend, the pattern is considered a bullish
continuation pattern. It means that the price is trying to overcome
a resistance level.
However, the pattern can occur in any market situation, and the
price can break out in any direction.
In this USDJPY chart below, you can see an ascending triangle in
an emerging uptrend. Take note of the stop loss and profit target.

Ascending Triangle Trading Pattern

Ascending Triangle is a continuation pattern that formed with one upward line and
one parallel line. This is a bullish triangle pattern. Formation of this pattern depends
on four factors:
1.Trendline: This is a bullish continuation pattern. A established trend
line is important for this pattern to be good formation.
2. Duration : this pattern take some time to form. Usually it take 1 to 3
month for formation.
3.Triangle formation: upward trend line and parallel trend line each
must have at least 2 points to for triangle formation.
4. Volume: On the break out day big volume is very important. Higher
the volume is better. Usually volume is dry up during the triangle
formation and pick up after the breakout of the pattern.

Profit Target:
This pattern profit target is max distance between point A and B. In the above graph,
Target is Point G from F which is equivalent to max distance between A&B.
Ascending TriangleTrade setup:
Here we used the Goldman sach (GS) charts for ascending triangle:

Entry to the Triangle Pattern Trade

This pattern entry occurred after stock broke the upper trend line with big volume.
Higher the volume with very strong Green Candle at trend line break, better the
performance of the triangle pattern. In the chart, Entry is above the high of breakout
bar at 158.75. First price target is G.
EXIT 1 For Triangle Pattern:
If stock failed to move up after the break out and came back to the upper trend line
and also closes below the upper trend line of the pattern that is a warning sign for
the trade. Trader should think about the exit. The first exit should be below the
breakout bar at price 155.17 . If price break this point, that means breakout is not
valid or stock needs more time for this breakout. Conservative trader can leave the
trade after stock went down below the breakout green candlestick. Again if stock hits
the upper trend line of the pattern but it’s not close below the trend line, this indicate
stock is really strong and no reason to leave the trade

Exit 2 for Triangle Pattern

If stock breached the upper trend line but its not broke the lower trend line or still
holding above the lower trend line, trader can still hold his position. However, if stock
broke the lower trend line and closed below the trend line, trader should definitely
leave the trade. This indicate continuation pattern is completely broken and stock
may move down further as a reversal pattern. Exit point should be at price 152.15.
The Ascending Triangle Candlestick Chart Pattern

The ascending triangle is a bullish candlestick chart pattern that occurs in a mid-trend and
signals a likely continuation of the overall trend. It’s one of the most common chart patterns
as it’s quite easy to form - consisting of two simple trend lines.

The price action temporarily pauses the uptrend as buyers are consolidating. This pause is
marked with higher lows pushing for a breakout to the upside, which then activates the
pattern.

In this blog post we will discuss how the ascending triangle is formed, what the message that
the market sends is, and share tips on a simple but effective trading strategy based on
ascending triangles.

What the Ascending Triangle Shows Us

The ascending trend line chart pattern is a bullish formation. It signals that the
market is consolidating after an uptrend, with the buyers still in control. The
occurrence of the higher lows is pointing toward a likely breakout as the wedge
narrows down.
There are three key features of an ascending triangle:

 Strong trend - In order for the ascending triangle to exist in the first place, the

price action must stem from a clear uptrend;

 Temporary pause - This element refers to the consolidation phase, which will

help the buyers consolidate their strength;

 Breakout - The break of the upper flat line marks the breakout, which

activates the pattern. It also helps us determine the entry, take profit, and stop

loss at a later stage.

Bullish continuation patterns can assume different forms - triangles, flags, pennants

etc. The ascending triangle is one of the most common formations in this area, as it

practically consists of two converging trend lines.

As a continuation pattern, the ascending triangle is based on the idea that the

likelihood of the trend continuing in the same direction is higher than the chance of a
reversal taking place. The bulls are in full control of the price action, as they have

been successful in pushing the market higher.

At one point, the consolidation phase starts, which gives the buyers breathing space

as they regroup for another push higher. These temporary pauses can take different

forms, with the ascending triangle being one of them.

From this perspective, it’s logical that the side that has been in control so far has a

higher chance of winning the upcoming matches than the side that has been on the

losing side. The period of consolidation ends once there is a confirmed breakout in

the direction of a previous trend.

Strengths and Weaknesses

As outlined earlier, the continuation of an uptrend takes a specific form. This form, in

this case the ascending triangle, helps us define the trading environment. On one

hand, a break of the upper trend line signals the continuation of the bullish trend.

On the other, a move below the supporting line breaks the series of the higher highs

and invalidates the entire pattern. In this case, the followup is usually a strong move

lower as the buyers missed their chance to continue the uptrend.

Thus, this is the main strength of the ascending triangle - it helps the uptrend to

extend. Due to the existence of two trend lines, we are in a better position to

determine the take profit and stop loss, if the pattern is activated.
The biggest limitation of the bullish triangle, as it’s the case with other types of

triangle, is a false breakout. The price action may move above the resistance line,

just to return below, and hit a stop loss. In order to minimize the chance of a failed

breakout, it’s always advised to consult other technical indicators and confirm the

breakout e.g. volume, RSI etc.

Moreover, consolidation of power takes place as the two lines converge. The

narrower the wedge gets, the stronger the breakout usually is. Hence, this amount of

power and strength can’t always be controlled, and therefore, it may end up in the

price exploding in the opposite direction, although the chances of a continuation of

the existing trend are always higher.

Spotting the Ascending Triangle

As said earlier, the ascending triangle is a bullish formation that occurs in a mid-

trend. In the chart below, we can see how the ascending triangle looks in the live

market. From an existing uptrend, the price action extends higher through the bullish

triangle.

Two trend lines are drawn to connect the highs and lows, with the latter closing in on

the former. When the two lines get closer to one another, the likelihood of a breakout

increases. Finally, the USD/CHF buyers are able to push the market outside of the

consolidation phase in a clear and strong breakout.

As you can see in the chart above, the upper line is not exactly flat. In general, it’s

extremely rare to see the upper trend line completely flat, as we will almost always

see mild bias toward one or the other side. As long as the resistance line is close to

being a flat one, it’s generally acceptable.

Trading the Ascending Triangle

Using the same example, we will now showcase how to trade the ascending triangle.

As soon as there is a breakout, which is confirmed with a close above the resistance

line, we may consider entering the market on the long side. As with every candlestick

pattern, we have two options for the entry - immediately after the breakout candle

closes, or waiting for a potential throwback.

The black horizontal line reflects our entry position - the breakout H1 candle close.

The stop loss is placed within a triangle, as any move below the upper line will
invalidate the pattern. As always, make sure you leave some space to allow for a

potential retest of the broken trend line.

The blue vertical trend line is a copy of the distance when the triangle was first

formed - when two trend lines were identified. The upper end of the trend line tells us

where we should consider taking our profits off the table i.e. where the ascending

triangle pattern is completed.

In the end, the market completed the bullish triangle formation and rotated lower.

This example shows how profitable ascending triangles can be, as we risked 15 pips

to make nearly 100 pips - a R:R ratio of more than 1:6.

Remember, the ascending triangle helps us format the price action and identify trade

details - entry, stop loss, and take profit.

Ascending triangles chart patterns
The ascending triangle is similar to the symmetrical triangle, except that only one side

is sloping.

An ascending triangle pattern is characterised by a usually flat level of resistance at

the top with the lower side sloping upwards as the price reaches higher lows. It can

signal weakening resistance and an approaching breakout to the upside. These

higher lows indicate that the bulls are gaining strength which presents you with

a possible buying opportunity. This lesson will show you two ways to trade using

ascending triangles.

Identifying an ascending triangle pattern

The chart below demonstrates what an ascending triangle pattern looks like:
Trading an ascending triangle: method one

One way to trade using an ascending triangle is to enter once the resistance level

has been broken and the price starts to move to the upside.

You can place the stop loss below the upwards sloping side of the triangle pattern

and measure the profit target by taking the height of the back of the ascending

triangle and extending that distance up from the trend line breakout.

The chart below demonstrates where to place the entry (blue), stop loss (red) and

take profit levels (green):

 1. Entry as the price breaks out of the triangle to the upside.

2. Stop loss goes just below the slope of the triangle.

3. Profit target goes the same distance away as the back of the triangle.

Trading an ascending triangle: method two

The second option is to wait for the price to break out of the triangle (breaking

through the resistance level), as in the first example and then look to place a buy

order on the retest of the previous support line (broken resistance now becomes

support).

The stop loss would go below the new support area and the profit target would

remain the same as in the first example – the length of the back of the triangle.
The chart below demonstrates the second way you can trade the ascending triangle

pattern. It shows the entry, stop loss and take profit levels:

1. Long entry

2. Stop loss goes below the support line

3. Profit target goes the same distance above as the back of the triangle

Summary

So far, you have learned that:

 an ascending triangle pattern is a signal of weakening resistance and a

potential upwards move. This presents you with a possible buying opportunity.

 you can enter after the resistance level has been broken, either on a breakout

or on a retest of the upper line.

  you can place the stop loss just below the lower, sloping level.

 the take profit level is determined by measuring the distance of the back of the

triangle and extending that distance upwards from the entry point.

How to trade ascending triangle?

As with most technical analysis patterns, we can trade either a breakout
or a pullback with the ascending triangle. The standard way to open a
position is to enter the market when the price breaks the resistance
level for the ascending triangle (buy), the support level – for the
downtrend (sell short), and the trend line – for the symmetric one
(up – buy, down – sell short). Stop-loss is set immediately behind
the level or trend line.
A conservative way to open a position – we wait for the first price
pullback after a breakout, and only after that we enter the market.
Set the stop loss in the same way.
 Don’t forget to control your trading volumes. At the moment of a
breakout, they increase significantly and keep such dynamics as the
trend continues. Also, do not place restrictive orders too far from the
entry point. Better trade is that’s taken from the very beginning.

The pros and cons of ascending triangle

Pros

 It is very easy to spot on the chart.

 This pattern has a clear target breakout level.
 Since this is a medium-term pattern, traders can make short-term
trades within the pattern while preferring trades in the previous trend
direction.

Cons

 False breakouts are possible.

 There is a possibility that the price will stick to a sideways trend for a
long period or even start to decline.

Ascending Triangle

An ascending triangle is a type of triangle chart pattern that occurs

when there is a resistance level and a slope of higher lows.

What happens during this time is that there is a certain level that the

buyers cannot seem to exceed. However, they are gradually

starting to push the price up as evidenced by the higher lows.

In the chart above, you can see that the buyers are starting to gain

strength because they are making higher lows.

They keep putting pressure on that resistance level and as a result,

a breakout is bound to happen.

Now the question is, “Which direction will it go? Will the buyers be

able to break that level or will the resistance be too strong?”

Many charting books will tell you that in most cases, the buyers will

win this battle and the price will break out past the resistance.

However, it has been our experience that this is not always the

case.
Sometimes the resistance level is too strong, and there is simply

not enough buying power to push it through.

Most of the time, the price will, in fact, go up. The point we are

trying to make is that you should not be obsessed with which

direction the price goes, but you should be ready for movement in

EITHER direction.

In this case, we would set an entry order above the resistance line

and below the slope of the higher lows.

In this scenario, the buyers lost the battle and the price proceeded

to dive! You can see that the drop was approximately the same

distance as the height of the triangle formation.

If we set our short order below the bottom of the triangle, we

could’ve caught some pips off that dive.

What the Ascending Triangle Shows Us

The ascending triangle is a bullish candlestick chart pattern that occurs in a mid-trend and

signals a likely continuation of the overall trend. It’s one of the most common chart patterns

as it’s quite easy to form - consisting of two simple trend lines.

The price action temporarily pauses the uptrend as buyers are consolidating. This pause is

marked with higher lows pushing for a breakout to the upside, which then activates the

pattern.

In this blog post we will discuss how the ascending triangle is formed, what the message that

the market sends is, and share tips on a simple but effective trading strategy based on

ascending triangles.

The ascending trend line chart pattern is a bullish formation. It signals that the

market is consolidating after an uptrend, with the buyers still in control. The

occurrence of the higher lows is pointing toward a likely breakout as the wedge

narrows down.
There are three key features of an ascending triangle:

 Strong trend - In order for the ascending triangle to exist in the first place, the

price action must stem from a clear uptrend;

 Temporary pause - This element refers to the consolidation phase, which will

help the buyers consolidate their strength;

 Breakout - The break of the upper flat line marks the breakout, which

activates the pattern. It also helps us determine the entry, take profit, and stop

loss at a later stage.

Bullish continuation patterns can assume different forms - triangles, flags, pennants

etc. The ascending triangle is one of the most common formations in this area, as it

practically consists of two converging trend lines.

As a continuation pattern, the ascending triangle is based on the idea that the

likelihood of the trend continuing in the same direction is higher than the chance of a
reversal taking place. The bulls are in full control of the price action, as they have

been successful in pushing the market higher.

At one point, the consolidation phase starts, which gives the buyers breathing space

as they regroup for another push higher. These temporary pauses can take different

forms, with the ascending triangle being one of them.

From this perspective, it’s logical that the side that has been in control so far has a

higher chance of winning the upcoming matches than the side that has been on the

losing side. The period of consolidation ends once there is a confirmed breakout in

the direction of a previous trend.

Strengths and Weaknesses

As outlined earlier, the continuation of an uptrend takes a specific form. This form, in

this case the ascending triangle, helps us define the trading environment. On one

hand, a break of the upper trend line signals the continuation of the bullish trend.

On the other, a move below the supporting line breaks the series of the higher highs

and invalidates the entire pattern. In this case, the followup is usually a strong move

lower as the buyers missed their chance to continue the uptrend.

Thus, this is the main strength of the ascending triangle - it helps the uptrend to

extend. Due to the existence of two trend lines, we are in a better position to

determine the take profit and stop loss, if the pattern is activated.
The biggest limitation of the bullish triangle, as it’s the case with other types of

triangle, is a false breakout. The price action may move above the resistance line,

just to return below, and hit a stop loss. In order to minimize the chance of a failed

breakout, it’s always advised to consult other technical indicators and confirm the

breakout e.g. volume, RSI etc.

Moreover, consolidation of power takes place as the two lines converge. The

narrower the wedge gets, the stronger the breakout usually is. Hence, this amount of

power and strength can’t always be controlled, and therefore, it may end up in the

price exploding in the opposite direction, although the chances of a continuation of

the existing trend are always higher.

Spotting the Ascending Triangle

As said earlier, the ascending triangle is a bullish formation that occurs in a mid-

trend. In the chart below, we can see how the ascending triangle looks in the live

market. From an existing uptrend, the price action extends higher through the bullish

triangle.

Two trend lines are drawn to connect the highs and lows, with the latter closing in on

the former. When the two lines get closer to one another, the likelihood of a breakout

increases. Finally, the USD/CHF buyers are able to push the market outside of the

consolidation phase in a clear and strong breakout.

As you can see in the chart above, the upper line is not exactly flat. In general, it’s

extremely rare to see the upper trend line completely flat, as we will almost always

see mild bias toward one or the other side. As long as the resistance line is close to

being a flat one, it’s generally acceptable.

Trading the Ascending Triangle

Using the same example, we will now showcase how to trade the ascending triangle.

As soon as there is a breakout, which is confirmed with a close above the resistance

line, we may consider entering the market on the long side. As with every candlestick

pattern, we have two options for the entry - immediately after the breakout candle

closes, or waiting for a potential throwback.

The black horizontal line reflects our entry position - the breakout H1 candle close.

The stop loss is placed within a triangle, as any move below the upper line will
invalidate the pattern. As always, make sure you leave some space to allow for a

potential retest of the broken trend line.

The blue vertical trend line is a copy of the distance when the triangle was first

formed - when two trend lines were identified. The upper end of the trend line tells us

where we should consider taking our profits off the table i.e. where the ascending

triangle pattern is completed.

In the end, the market completed the bullish triangle formation and rotated lower.

This example shows how profitable ascending triangles can be, as we risked 15 pips

to make nearly 100 pips - a R:R ratio of more than 1:6.

Remember, the ascending triangle helps us format the price action and identify trade

details - entry, stop loss, and take profit.

The Ascending Triangle Pattern: Definition and Trading Strategies

An Ascending Triangle Chart Pattern is a bullish continuation pattern. It is formed

when prices are trapped between a rising trendline and a horizontal resistance

line. The trendline and resistance line are forming a triangle, a right angle triangle

even.Ascending Triangle Chart Pattern Example

The following things are important when identifying an ascending triangle:

1. There should be an horizontal resistance line which has at least 2, but

preferably more points where it is touched by price. In the example chart

above we see a red resistance line which is touched 5 times.

2. There should be a rising (or ascending) support line line which has at least 2,

but preferably more points where it is touched by price. In the example chart

above we see a green support line which is touched 5 times.

3. Ideally the trend leading up to the pattern was rising, this is why the pattern is

called a continuation pattern.

4. Ideally the overall volume declines during the pattern formation.

Ascending Triangle Pattern Trading Strategy.

The ascending triangle is a base formation. A base formation or consolidation is a

pause in the trend where the prices stabilize around certain levels. After the run up

some traders and investors start to take profits. When the price can remain in a

certain range it means there are enough new buyers to support the profit taking and

slowly more and more shares are in the hands of new shareholders. When the price

stabilizes the stock becomes more attractive to new and more buyers (most people

do not like to buy after several up days) and the stock becomes interesting to

technical traders noticing the base formation.

What we now want to see is a breakout above the horizontal resistance line.

Depending on the specific chart and your trading style, a stop can be placed below

the rising support line or below the horizontal resistance line. (A day trader will

typically take a larger position and will have a stop below the low of the day and
move the stop during the day already, while a swing/position trader will give more

room and see how things unfold in the coming days and weeks).

The chart below gives a full overview of the idea:

We see:

1. An uptrend

2. The formation of an ascending triangle pattern, including decline volume

during the formation.

 3. A breakout. The breakout occurs with higher volume, which is always a good

sign.

4. A retest of the resistance line, which now acts as support

5. Continuation of the trend

As always: the chart above shows how we want an ascending triangle to behave.

This is what we call text book behavior. However: the formation of an ascending

triangle is no guarantee for a continuation of the trend. Anything can happen and

when engaging in such a trade we will use stops and money management to make

sure our maximum loss is limited.

Ascending triangles
These triangles usually have a horizontal upper boundary (resistance line),

while their lower bound has an upward slope. We can say this in another

way – prices reach higher lows, while the resistance line limits price action

until eventually a breakout occurs.

Ascending triangles suggest that long-positioned traders are strong,

because price action forms higher lows, while short-positioned players

demonstrate a gradually diminishing strength. Despite that sellers manage

to force buyers away from the resistance level, each time this occurs with a

lesser force. As sellers fail to push buyers back to the same bottoms

(troughs), eventually buying pressure increases, with more buyers joining

in. This way prices get closer and closer to the resistance line, until they

finally breach it.

Although some theories teach that a breakout occurs in the direction of the

triangle (an upward breakout in 77% of all cases), it is common to see a

breakout in the other direction, in case the line of resistance appears to be

too strong for long-positioned traders.

Here we can see an ascending triangle with a breakout, occurring to the

downside.

On the 4-hour chart of AUD/USD above we can observe an ascending

triangle, reflecting the continuation of the prior downtrend.

What is an ascending triangle?

An ascending triangle is a bullish continuation chart pattern. The pattern is formed by

two converging lines.

The first straight line is a supporting bullish oblique, also known as the "ascending

triangle support line".

The second line is a horizontal resistance, also known as the "ascending triangle

resistance line".

An ascending triangle is confirmed/valid if it has good oscillation between the two

lines.

Each of these lines must have been touched at least twice to validate the pattern.

NB: a line is said to be "valid" if the price line touches the support or resistance at

least 3 times.

This implies that the ascending triangle pattern is considered valid if the price

touches the support line at least 3 times and the resistance line twice (or the support

line at least twice and the resistance line 3 times).

An ascending triangle’s price objective is determined by the high point of the

triangle’s base, which is plotted on the break out point (above the resistance).

Another technique consists of drawing a line parallel to the ascending triangle

support line, from the first contact with the resistance.

Graphical representation of an ascending triangle

Ascending triangle statistics

- In 62% of cases, the exit is bullish.

- In 75% of cases, an ascending triangle is a continuation pattern.

- In 75% of cases, the triangle's price objective is reached when the resistance is

broken (exit from the ascending triangle).

- In 60% of cases, the price makes a pullback after exit in support on the triangle's

resistance line.

- In 25% of cases, the price line indicates false line breaks or false triangle exits.
Notes on ascending triangles

- The exit most often occurs at 2/3 of the triangle’s length. The exit level offers the

best performance.

- The ascending triangle’s price objective is generally obtained before the tip of the

triangle (intersection of the two lines forming the triangle).

- False breaks give no indication of the true direction of exit.

- Avoid taking a position if the break/exit occurs before 2/3 of the triangle’s length.

- Pullbacks in support on the ascending triangle’s resistance line are detrimental to

performance.
Bulkowski on Ascending Triangles

Ascending Triangle: Overview

The ascending triangle is a decent performer after an upward breakout but suffers
after a downward breakout.

Click ascending triangle to read about the Elliott wave version.

Ascending Triangle: Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): 16 out of 39/30 out of 36

Break even failure rate for up/down breakouts: 17%/38%

Average rise/decline: 43%/13%

Throwback/pullback rate: 64%/63%

Percentage meeting price target for up/down breakouts: 70%/44%

The above numbers are based on more than 1,400 perfect trades. See
the glossary for definitions.

Ascending Triangle: Identification Guidelines

Characteristi
Discussion
c

Price trend Can be any direction leading to the chart pattern.

Shape Triangular. Prices move between two converging trendlines.

Two trendlines bound prices; the top trendline is horizontal and the
Trendlines
bottom one slopes upward.

Price must cross the pattern from side to side, filling the triangle with
Crossing
price movement, not white space.

Touches Price must touch one trendline at least three times, the other at least
 twice, forming distinct valleys and peaks.

Volume Trends downward at least 78% of the time.

Upward 63% of the time and 64% of the way to the triangle apex (for
Breakout
both breakout directions).

More

Ascending Triangle: Trading Tips

Consult the figure on the right.

Trading Tactic Explanation

Compute the height from the

price of the horizontal trendline
(B) to the lowest valley in the
pattern (A) and then multiply it
by the above 'percentage
meeting price target.' Add it
The Measure Rule
Measure rule (upward breakouts) or subtract
it (downward breakouts) from
the breakout price. The
breakout price is the point at
which price pierces the
trendline. The associated link
provides more information.

Stop Place a stop loss order on the

side opposite the breakout
unless that would be too far
away. Click the link on the left
for stop placement information.
For example, if the breakout is
upward, a stop at any of the
 minor lows on side A would
work well. For downward
breakouts, use the price of B
as the stop price.

Patterns with a intermediate-

term rise (between 3 and 6
Rise months) leading to the triangle
show price rising an average of
49% after an upward breakout. Score your chart pattern

Throwbacks and pullbacks hurt for

post breakout performance. performance by

The links on the left define clicking here

Throwback and Pullback
terms. For performance
s
information
on throwbacks and pullbacks,
click the associated link.

More

Expect the market to turn when it reaches the apex of the triangle. See Triangle

Apex and Turning Points.

Ascending Triangle: Example

The figure shows an example of an ascending triangle. Price bounces between two
converging trendlines, the top one is horizontal and the bottom one slopes upward.

To calculate a price target, subtract the price of the lowest valley in the chart pattern
(A) from the price of the top trendline (B). That gives the height. Multiply the height
by the 'percentage meeting price target' from the Important Bull Market Results table
near the top of this page, and add it to the price of the top trendline B. In this
example, point C makes for a good stop location.
For downward breakouts, compute the height in the same manner only subtract the
height from C.

-- Thomas Bulkowski

Bulkowski on the Ascending Triangle Elliott Wave

Pattern

This page describes the ascending triangle pattern of the Elliott wave principle, how price

moves not in a straight line but in a series of rises and retracements.

The figure to the right shows what an ascending triangle looks like in a bull market. The

ascending triangle is a region of horizontal price movement, a consolidation of a prior move,

and it is composed of "threes." That means each of the A-B-C-D-E waves have three

subwaves. I labeled the B subwaves with red numbers, 1, 2, and 3 as an example. Expect

volume and volatility to recede as the pattern moves toward the breakout, but this is not a

requirement.

In an ascending triangle, the top of the triangle bumps up against overhead resistance (the

horizontal red line), and the bottom of the triangle slopes upward following

another red trendline.

An ascending triangle in a bear market is not an inverted picture of a bull market

triangle. Rather, the chart to the right shows an ascending triangle with the waves

inverted while still obeying the flat top and up sloping bottom trendlines. The A-B-C-

D-E waves subdivide into threes, forming a 3-3-3-3-3 configuration.

On rare occasions, an ascending triangle can nest inside an ascending triangle. You

see this when the wave count exceeds the A-B-C-D-E format, forming a nine wave

pattern. Also, Frost and Prechter say that when price reaches the apex of the

triangle, expect the market to turn.

Ascending Triangle Rules

The ascending triangle has rules that govern its shape. They are listed here.

 The tops of the waves peak near the same price, following a horizontal

trendline.

 The bottoms of the waves generally follow an up-sloping trendline.

 Five waves compose the ascending triangle (A-B-C-D-E), unless extended.

 Each of the A-B-C-D-E waves are composed of three subwaves, so it has a 3-

3-3-3-3 configuration.

 Volume and volatility tend to recede over the life of the pattern, but this is not

a requirement.

-- Thomas Bulkowski
Ascending Triangle Patterns Can
Lead To Quick Profit
The ascending triangle pattern is one of my favorite chart patterns to

look for in a bullish chart scenario.

It is one of the classical charting patterns that has been around for

decades, much like the head and shoulder chart pattern, and maybe it

has stood the test of time.

Why?

Because the ascending triangle, when looked at in the context of market

action, makes sense especially when it’s a continuation pattern.

Ascending Triangle Pattern Breakdown

Why does the ascending triangle makes sense as a bullish chart

pattern?

Let’s look at what the pattern is in an up trending market: a series of

higher highs and higher lows.

 Traders are buying at higher price in an uptrend with the expectation,

however decided, that price will continue to go higher.

In the ascending triangle however:

 Price makes higher lows as shown by a rising trend line on lows

 Price makes similar swing highs forming a resistance line or zone

 Higher lows show smaller corrective declines which shows lack of

downside interest

Why would traders buy at higher prices when price is not making new

highs? There is an expectation that price will eventually go higher with

an upside breakout.

That is the power of the ascending triangle chart pattern.

1. Traders are expecting more upside and have no problem buying at

higher price
2. The resistance level shows there are some who will still sell at this zone

but the higher lows show they are becoming less involved to the

downside

3. There may be stop accumulating above the resistance zone for those

who are shorting. We could also be seeing longs exiting positions at

the resistance line as a risk control measure

The coiled up buying pressure and the sudden realization from sellers

that an eventual break upside is the intended direction, and they bail out

on shorting or selling at the price zone shown by the resistance line.

That said, nothing is 100% in trading and the breakout to the upside can

fail.

Trading The Ascending Triangle

There are a few ways you can trading this triangle pattern and I will show

you my favorite use of it.

First though, let’s look at some common trading strategies around the

ascending triangle

Trading The Breakout – Stop Order

 I wanted to show that these patterns are not always as picture perfect as

you saw in the earlier graphic. The concept here is the same:

 Common price zone for the highs

 Higher lows into resistance

Anticipating the breakout, traders can place a buy stop order just over

the top of the resistance area. The main issue with this method is that

markets do have failure tests which is simply price probing highs and

then falling back.

With a failure test (commonly known as a bull trap), you’d find yourself

triggered into the trade and almost immediately under water with the

trade because of a false breakout.

 Enter On Confirmation – Close

Another way to enter a long trade with the ascending triangle is to

monitor the resistance level and enter on the close of the breakout

candle or bar.

Another “not perfect” formation but the concepts, especially where the

small horizontal line is, are intact.

Enter at market on the close of the candlestick if it stays above the

breakout point as this one did.

The issue is if the breakout candlestick was the next one, the momentum

candlestick, which could lead to a snap back in price soon after you

enter. Depending on your stop loss position, the risk and position sizing

on that trade may not be worth the reward.

 Wait For Breakout Point Test

This method would have the breakout occur, price action above the

breakout point, and a test of the breakout location to confirm the

breakout will hold.

The breakout/pullback is a common trading pattern that is used from

horizontal range price pattern breakouts.

You can see these patterns do take time to develop. As mentioned

earlier, the concept matters and although I am using a bigger picture

resistance line, you can see one forming lower.

You would allow price to breakout and pull back to the resistance line.

You would enter your trade in that zone.

 The biggest issue is that price could take off and not pull back to the

breakout origin.

One thing to keep in mind with pullbacks, price can come back into the

pre-breakout zone and not violate the breakout itself. I will cover that

later.

My Favorite Ascending Triangle Strategy

I find the most use with this pattern is positioning before the breakout

occurs.

In doing so, you get the benefit of instant positive feedback if momentum

develops after the breakout.

Important points

 I am not looking for the ascending triangle pattern first

 A horizontal range is needed

 I can use lower time frames for price action

 This is a lower time frame chart however the range was found on the

daily chart as noted by the top white line and bottom yellow line.

The dashed line is a secondary resistance zone where the break above

in the middle, was just an expansion of the range.

The yellow splash is the area to notice.

 Price formed a bigger picture range

 Smaller time frames highlights the ascending triangle pattern

 Basing under resistance is bullish

 Traders enter their position in the basing zone

What we have done is position ourselves before the breakout using a

structure that is considered to be bullish.

 A more idealized pattern for the range, ascending triangle, and basing is

in this graphic.

The concept is clear:

 Buyers stepping in at higher prices

 Sellers and are unable to push price away from resistance – their entry

point – to get positive feedback on their trades. That is the basing

 We are looking for the capitulation of sellers to drive our trade through

resistance and hopefully engage breakout traders

Does it work all the time?

No.

What we have done is put probabilities of one thing happening over

another in our favor. We just have to manage risk and ensure we place

our stop loss.

 Stop Loss Locations

You will never place a perfect stop loss and my choice for stop loss is

using the average true range.

However, some traders will want to use some type of structure based

stop which also is a good way to limit your risk on a trade.

Some people will say to put the stop under the rising trendline at X.

Does this make any sense?

 Larger stop loss in distance

 Price breaks multiple structures if it breaks down

 Trend lines can be drawn several different ways

Why does the yellow splash zone makes more sense?

 Respects structure – a support zone

 Price pulling back inside resistance does not invalidate the breakout –

this level being violated does

 No need to let a trade run so far against you

Whatever you choose for stops, just be consistent with every trade.

Take Profits

Like stops, there are several ways to take your trading profit once the

ascending triangle resistance is violated.

 Multiples of your risk – 1R, 2R, 3R

 Trailing stops – several variations

 Pattern based targets – let’s explain those

A pattern based profit target uses the height of the pattern projected

from the breakout point.

 How do you calculate the take profit target?

1. Measure the height of the ascending triangle from the resistance line to

the lowest low that forms the uptrend after the first resistance point

2. Take the height and project from the breakout point

3. Use the full target or scale out at 50% and move stop to break even

Like our stop loss, whatever you choose to use as your strategy for

ascending triangles, please be consistent.

 Ascending Triangle Chart Pattern

The ascending triangle is a price pattern made up of two trendlines. A

flat upper trendline which acts as the level of resistance and a lower

trendline that joins higher lows in an upward slope.

The pattern can indicate that the bulls are gaining control with the

higher lows and weakening resistance leading to a potential breakout to

the upside.

Ascending Triangle Trading Strategy

There are two common ways with which you can trade the ascending

triangle.

Now that we know what the ascending triangle looks like. Let us look at

two ways of trading the pattern.

Method 1

The first way a trader can look to take advantage of the pattern is to wait

for the price to break out above resistance and then go long.
It is always a good idea to wait for the candle to close above the

trendline after price breaks out. As this confirms that the bulls are in

control.

The Stop-Loss can be placed below the upward sloping trendline.

To measure the profit objective. Measure the height of the back of the

triangle and extend this measurement to the upside where price broke

out from the trend line.

Method 2

The second way to trade this pattern is more conservative.

The method is to wait for the price to break out of the triangle as

previously shown. But instead of entering directly after you break out you

wait for the price to pull back to the origin of the breakout.

In other words, you are looking for broken resistance to become support.
The Stop-Loss would be smaller when trading this method as it would go

below the new support level.

The profit objective is calculated in exactly the same way as the first

method. By measuring the height of the back of the triangle and

extending this measurement from the breakout point where price broke

the trend line.

SAMPLE CHART AND ANALYSIS OF ASCENDING TRIANGLE

Ascending Triangle in HDFCBANK .

Buy above 1786

Stop 1772
Target 1800 1822

Trade with Care

Aug 1, 2017

Trade active: Buy active

Aug 1, 2017

Trade active: 1799 Till now. Near to first target Intraday Book and Exit. Positional
hold with Cost as stoploss.

Aug 1, 2017

Trade active: 1809.15. Booked 75% carrying small portion for final target

Aug 2, 2017

Trade closed manually: Closing this Post. Trailing Stoploss Hit

Example of ASCENDING TRIANGLE CHART PATTERN
1. Long entry
2. Stop loss goes below the support line
3. Profit target goes the same distance above as the back of the triangle
 Descending Triangle
Unlike ascending triangles, the descending triangle represents a bearish
market downtrend. The support line is horizontal, and the resistance line
is descending, signifying the possibility of the downward breakout.

In contrast, a descending triangle signifies a bearish continuation of a downtrend.

Typically, a trader will enter a shot position during a descending triangle – possibly

with CFDs – in an attempt to profit from a falling market.

Descending triangles can be identified from a horizontal line of support

and a downward-sloping line of resistance. Eventually, the trend will break

through the support and the downtrend will continue.

The descending triangle is the bearish version of the triangle pattern and it's

formation is a sign the current down-move/downtrend is likely going to continue.

The only difference it has with the ascending triangle is that it's straight edge is a

resistance level which stops prices from rising higher during the formation of the

pattern in the market.

In this image you can see a descending triangle pattern which formed on the1hour
chart of AUD/USD.
Note: The ascending and descending triangle patterns are

good to know but not that great for trading, due to the way

a few false breakouts will usually take place before the real

breakout occurs and causes the market to move in the

direction it was moving in prior to the pattern forming in the

market.

The descending triangle is the opposite of the ascending triangle in that it gives a

bearish signal to chartists, suggesting that the price will trend downward upon

completion of the pattern. The descending triangle is constructed with a flat support

line and a downward-sloping resistance line. Similar to the ascending triangle, this
pattern is generally considered to be a continuation pattern, as it is preceded by a

downward trendline. But again, it can be found in an uptrend.

Figure 3: Descending triangle

The first part of this pattern is the fall to a low that then finds a level of support, which

sends the price to a high. The next move is a second test of the previous support

level, which again sends the stock higher - but this time to a lower level than the

previous move higher. This is repeated until the price is unable to hold the support

level and falls below, resuming the downtrend. This pattern indicates that buyers are

trying to take the security higher, but continue to face resistance. After several

attempts to push the stock higher, the buyers fade and the sellers overpower them,

which sends the price lower.

 Descending Triangle Pattern

Descending triangle pattern is another triangle pattern that

form with one horizontal line and one downward sloping line.
Descending triangle could be bullish or bearish.

Trend line: Trend line indicates the stock possible movement

path. An establish trend line is good for the pattern. Depends
on the position of the pattern it could be bearish continuation
pattern or bullish reversal pattern. Established trend line help
to understand the possible breakout.
Horizontal line: This pattern lower part has a horizontal line.
To form the horizontal line, pattern must have at least two
connecting points. More is better for the pattern.
Downward sloping line: this triangle pattern formed with a
downward sloping line. This line must be connecting with 2 or
more points in order to form the pattern.
Volume: Volume is also a good indicator of pattern
consistency. If breakout occurs with big volume and volume dry
up during the formation of the triangle, a good sign that this
pattern is not a false breakout.
Retouch the pattern: some time stock break out but came
back to the pattern borderline and started to move again. This
is actually good for the pattern and reaffirms that pattern is
moving on the right direction.

Profit Target
Profit target for this pattern is maximum distance between
horizontal line and downward sloping line. In the above chart,
price target is G to F which is equivalents to distance A&B.

Trade setup
In the chart we use CSX, to show how to enter the trade and if
pattern fails, when to exit the trade and possible entry and
exits points.
Entry to the Triangle Pattern
Trade
in the above chart entry is after breakout occur. Some people
enter the trade immediately after the breakout. This is risky as
this could be false breakout. Better approach is to wait and see
how stock played out after the break out occurs and the
number of volume traded at that time. Entry point is above or
at the brown line at 28.08. If everything works out right, first
entry target point should be at point G.

EXIT 1 For Triangle Pattern

In the above chart, first exit point is below the breakout bar.
The reason for this exit is if stock close down the breakout
candle, that means stock closed within the pattern. This means
stock performance is not strong enough to reach to the target
point. This is a conservative exit strategy.

Exit 2 for Triangle Pattern

If stock comes back to pattern and stays with the pattern, the
pattern is still intact. But if stock break down the horizontal line,
the pattern is broken. Now this pattern is becomes a reversal
pattern and trader will enter for short trade. That’s why exit
point 2 is really important and there is not enough strong
reasons to hold the position after that point. In the chart, exit
point 2 is 26.5. after that point stock is ready for rather bearish
set up depends on volume and other technical indicator.
 Descending triangle
In contrast, a descending triangle signifies a bearish continuation of
a downtrend. Typically, a trader will enter a short position during a
descending triangle – possibly with CFDs – in an attempt to profit
from a falling market.

Descending triangles generally shift lower and break through the

support because they are indicative of a market dominated by
sellers, meaning that successively lower peaks are likely to be
prevalent and unlikely to reverse.
Descending triangles can be identified from a horizontal line of
support and a downward-sloping line of resistance. Eventually, the
trend will break through the support and the downtrend will
continue.

Descending Triangle Trading

Strategy Guide
I love to trade the Descending Triangle chart pattern.
Why?
Because unlike most chart patterns which don’t make sense,
the Descending Triangle has a logic to it.
And if traded correctly, it allows you to catch explosive
breakout trades about to occur (way before anyone else).
I’ll share the details with you later.
But first…

What is a Descending Triangle and

how does it work?
The Descending Triangle looks like a series of lower highs
coming into an area of Support.
Here’s how it looks like…
This is a bearish chart pattern that shows the sellers are in
control.

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Here’s why…

Strong selling pressure and lack of

buying pressure
Usually, as the price drops lower more demand comes in to
push the price higher.
But that’s not the case for the Descending Triangle.
Because as the price drops lower, there’s still a lack of buying
pressure. Instead, sellers are willing to sell at even lower
prices (that’s why you get a series of lower highs).
 Sell stop orders clustered below
Support
Here’s the thing:
Many traders will buy because the price is at Support and set
their stops below it (since that’s what most textbooks teach).
As more traders do it, the cluster of stop loss builds up over
time.
And since the market moves from one area of liquidity to the
next, the price is likely to break below Support and trigger
those cluster of stops — which increases the selling pressure.
Pro Tip:
The Descending Triangle is one of the three triangle chart
patterns out there.
The other two are the Ascending Triangle
Pattern and Symmetrical Triangle Pattern.

Descending Triangle Breakout:

How to “catch the train” before it
leaves
The most common way to trade the Descending Triangle is to
go short when the price breaks below Support.
Still, there are important things to consider if you want to find
the highest probability breakout trades.
Let me explain…

1. The breakdown should occur near the

 apex of the Descending Triangle
In case you’re wondering… the “Apex” refers to the tip of the
Triangle.
Now, the reason you want to short near the Apex is that’s
where volatility is the lowest.
You’ll see the price gets squeezed till it “explodes” out of the
Descending Triangle.
This works in your favor as the price can quickly move in your
favor (with little to no drawdown).
Here’s an example…

Next…

2. The more times Support is tested —

the better
When the price tests Support multiple times, it’ll attract more
buyers and increase the number of stop orders below
Support.
This is great for the breakout trader because if the price
breaks below Support, this cluster of stop orders would
increase the selling pressure towards the downside.
Moving on…

3. How to time your entry and set your

stop loss
If you wait for a candle close, the price might have dropped a
lot and you end up “chasing” the market.
Thus, my preferred method is to use a sell stop order and
enter the trade when the price just breaks below Support.
And what about stop loss?
Well, I’d like to give it some buffer (like 1 ATR) and set it
above the downward trend line.
Because that’s the point where if the price reaches it, it’ll
invalidate the Descending Triangle chart pattern.
Here’s what I mean…
Now some of you might be thinking…

“But what if I miss the breakdown

of the Descending Triangle?”
If that happens, the last thing you want to do is chase the
market because that’s when the market is about to snap
back higher.
Instead, a better option is to wait for the Re-test.
Here’s how…

1. Wait for the price to re-test the

breakout point
If you wait for the re-test, you’re entering at a favorable trade
location where previous Support is likely to act as Resistance.
This means you have a tighter stop loss on your trade which
offers a favorable risk to reward.

2. Let the price “confirm” your bias

Now, you don’t want to “blindly” place a sell limit order at the
breakout point because the price could breakout higher.
So, wait for the price to “confirm” your bias before shorting
the markets.
This can appear in the form of reversal patterns like Shooting
Star, Bearish Engulfing, etc.

3. How to time your entry and set your

stop loss
Once the market has “confirmed” your bias, you can go short
on the next candle open and have your stop loss 1 ATR above
the swing high.
Here’s what I mean….

Moving on…

The First Pullback

There will be times when the market doesn’t re-test the
breakout point.
So, what now?
This is where the final technique comes into play, The First
Pullback.
This is where you trade the first pullback after the breakout
(and it looks something like a Bear Flag pattern).
Here’s what to look for…

1. Wait for a first pullback after the

breakdown
You want the pullback to be shallow with small range candles
— and it shouldn’t go past the 20-period Moving
Average (MA).
Why?
Because with a shallow pullback, your stop loss is tighter
which offers you a favorable risk to reward.
Also, with a shallow pullback, it tells you the sellers are
strongly in control and the next “wave” lower can be fast and
furious.

2. How to time your entry and set your

stop loss
After you get a shallow pullback, you can place a sell stop
order below the swing low and go short when the price
breaks below it.
And your stop loss can be 1 ATR above the swing high (or the
20MA).
Here’s an example…
Now:
You’ve learned 3 different techniques to trade the Descending
Triangle.
In the next section, you’ll discover how to exit your winning
trades for maximum profits.
Continue reading…

Descending Triangle: How to exit

your winners for maximum profits
Now, there are two ways to exit your winning trades…

1. Price projection
2. Trailing stop loss
I’ll explain…
Price projection
This technique is adopted from Classical Technical
Analysis where a chart pattern is completed after moving X
amount in your favor.
For a Descending Triangle, X is defined as the distance
between the highs and lows of the Descending Triangle chart
pattern.
Here’s how it works:

1. Calculate the distance between the high and low of the

Descending Triangle
2. Take the distance and project it at the breakout point
3. The “future” price point is where you exit your trade
Here’s what I mean…
Pro Tip:
You can use the price projection technique and decide
whether it’s “too late” to enter a trade, or not.
If the price is close to reaching its price projection, there’s
probably not much meat left in the move (and you might
want to skip the trade).

Trailing stop loss

Unlike the price projection technique, a trailing stop loss
doesn’t use a fixed target profit.
Instead, you trail your stop loss as the price moves in your
favor so you can ride a trend.
Here’s how it works…

 Decide on the type of trend you want to capture

(whether it’s short, medium, or long-term trend)
 Trail your stop loss with the appropriate Moving Average
(20MA for short-term, 50MA for medium-term, and
100MA for long-term)
  Exit your trade when the price closes beyond the Moving
Average
Here’s an example:

Pro Tip:
There are different ways to trail your stop loss. If you want to
learn more, check out 5 Powerful Techniques to Trail Your
Stop Loss and Ride Massive Trends.
Now you might be wondering:
“Which is better, price projection or trailing stop loss?”
One thing you’ll hear me repeating often is…
“There’s no best trading techniques, settings, or whatsoever.
You’ll need to know what’s your goal and then use the tools
and techniques to meet your needs.”
So for example:
If you want to capture a swing (or one move) in the market,
then the price project technique makes sense.
And if you want to ride trends in the market, then a trailing
stop loss works best.
Make sense?
Great!

Conclusion
So here’s what you’ve learned:

 The Descending Triangle shows that sellers are in control

and the price is likely to move lower
 You can trade the breakdown of the Descending Triangle
by placing a sell stop order below Support
 The more times the price test Support of the Descending
Triangle, the greater the likelihood of a breakdown
 If you miss the breakdown of the Descending Triangle,
you can look to trade the re-test of the breakout point
 Sometimes the price might not re-test the breakout point
so that’s where you can trade the first pullback
 You can exit your winners using the price projection or
trailing stop loss technique
Descending Channel – Learn
How to Trade This Common
Pattern

What is a Descending Channel

A descending channel pattern consists of two parallel lines

that are equal distance apart and surround price action.

Are you confused yet? Well, a picture is worth a thousand
words.
Down Channel

What are some of the things you notice right away when
reviewing the chart?

A couple of items that jump out to me are that you need at

least two points that you connect the line to start the
channel. In this case, it’s the lines at the top of the channel,
which have the red arrows pointing to them in the image.

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Next, you will notice that the bottom of the channel runs from
the low point of the gap up candle (large green candle in the
chart). Notice how price stays within this channel as the stock
EA marches lower.

How to Trade Descending

Channels

There are multiple ways you can trade descending triangles.

Now, each method will require a different trading style and
preference, so you will need to see if one or any of these
approaches work for your trading style.

#1 – Trade the Breakout

One method is to trade the breakout of the channel. This

breakout can be to the upside, but also to the downside. This
setup is going to be the toughest of the three to trade, due to
the false breakouts which occur in the market at a high
frequency.

Breakout to the Upside

A breakout to the upside means there is a possible shift from

a bearish sentiment to bullish. This strategy will have you
buying the break above the channel. It’s recommended that
buying into this break should occur after multiple tests of the
upper channel line. Reason being breakouts early on in the
channel often lead to traps as shorts push the price of the
stock back down to the lower end of the channel.

Upside Breakout

Breakout to the Downside

The breakout to the downside is again often overlooked as a

method for trading this setup. A break below the lower trend
channel line is a signal that the stock is experiencing
significant weakness. This likely means the channel is now
expanding and there will be a new lower channel line.

I know this sounds a bit ambiguous, but this is trading. The

market is going to do whatever it wants and you need to be
prepared to handle the action.
Breakout to the Downside

As you can see in the above chart of ARLO, after trading in a

down channel for a few hours, the stock broke to the
downside shortly after 10.

Stocks that breakout in the early morning session have a

greater likelihood of following thru on the breakout. In this
example, after hugging the oversold line for a few candles,
ARLO broke thru with a vengeance.

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#2- Short the Test of the Top of the

 Channel

Channels are better suited for traders that place trades

within the range. The top of the channel is also known as the
overbought territory for all of you Wyckoff traders out there.

This means that as a stock approaches the upper channel,

there is a high probability of price returning inside of the
channel.

For this strategy, you will place your sell order at the top of
the channel and then cover your position as the stock moves
in your favor. There is no guarantee the stock will make it all
the way back to the support channel, so you need to be
prepared for anything.

Also, the price action for stocks trading in channels is often

slow and boring. Therefore the trading action will appear
erratic at times as price marches to its own beat. This will
give you a number of false signals, and head fakes as the
action plays out within the channel.

This is why again it’s better to cover as things go in your

favor and remember to exercise patience.
Shorting Resistance

In the above example, notice how CLDX tests the top channel
and rolls both times. The more touches you have in the
channel, the greater the risk of the stock breaking out.

It’s like anything in life, the more tests of something, at some

point it’s going to break.

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#3 – Buy the Test of the Bottom of the

Channel
Buying the test of the lower portion of the channel can get
tricky. This is because you are knowingly buying a stock that
is in a weak position. Therefore, you need to tread the waters
with caution. Doesn’t mean you can’t take action but you
have to be prepared that the stock may not bounce and could
just ride the lower portion of the channel lower with no
reaction back to the top line.

Buying the Lower Channel

As you can see in the above example of EGHT, there were a

number of buy opportunities, but there was only one that had
a nice run up to the top of the channel. As you can see, there
are setups, but you have to size them up appropriately.
Placing Stops with a
Descending Channel Setup

Like any other trading setup or strategy, you need to enter

stops. This will protect you from the unthinkable.

In a channel trade, your stop is determined by the strategy.

For breakout trades, you want to keep your stops beneath

the top of the channel.

Stop for Breakout

Channels Can Bore You to
Death

We do have to talk about the fact that trading channels can

bore you to death. What I mean by this is that the action in a
down channel can be slow.

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This means as you are observing the action, you should not
overreact to one red or green candle. The stocks will
generally hit one of the lines, but the move to the line is not
linear.

Multiple Channels on One Chart

– Which One Takes Priority?

As you are trading a channel let’s say on a 5-minute chart,

there could be another channel that you run up against on a
larger time frame.

So, what do you do?

For me, I am aware of the overhead resistance, but as a day

trader, I do not react before observing the price action. If it
begins to stall, I know the traders monitoring this channel are
in control.

If the stock slices through this channel with ease, I know that
the channel I am observing on the shorter time frame is in
control.

False Breakouts in Descending

Channels

If you are day trading, descending channel patterns will

materialize in the middle of the day. This is because the
pattern takes time to develop.

Remember, the pattern needs the back and forth which is the
makeup of the middle of the day trading.

The challenge with this pattern is midday trading is

notoriously difficult and boring. With the lack of activity
comes the risk of making a bone head move.

So, as a day trader, you need to decide if this is something

you want to do with your day. Remember, it’s okay to just
say no.
See How TradingSim Can Help

Descending channels are a common trading pattern in the

markets. If you are looking to make some trades on both the
long and short side you have that option.

Remember, in descending channel patterns the bears are in

control, so if you go long, tread lightly.

You can always take a spin of the Tradingsim Platform to see

if descending channels are a good fit for you

Two Simple Ways to Day Trade

Descending Tops

What is a Descending Top

Pattern?

D escending tops develop when the price action produces

lower tops between swing lows.
As the tops are lowering with each successive move, a
bearish trend is forming right before your eyes. Therefore,
traders use descending tops to enter short trades.
How to Identify a Descending
Top Pattern

To identify a descending top pattern, you first need spot at

least two tops on the chart, which are descending. Then you
draw a line connecting these tops.

Descending Tops Pattern

If you manage to do this, you will have a bearish line, which

you can use to project the price movement lower.

Classic Descending Tops

Trading

Let’s now walk through how to trade the descending top

pattern.
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Entry – Descending Tops

The entry point for the descending top pattern is fairly

straightforward. After identifying the first two tops, you will
need to wait for a third test of the downtrend line. On this
reaction higher, you will want to enter a short trade on the
down trend line.

Stop Loss – Descending Tops

You should never enter a descending top trade without a stop

loss order.

What if the price action moves quickly against you? What if

the company you are trading releases a positive data and the
price bounces to the roof?

For this reason, you should always be protected with a simple

stop loss order.

The good place for your stop is above the third top.

Profit Target – Descending Tops

There are two options for exiting a descending top trade. The
first one concerns the usage of a bearish trend line. The
second one is related to the descending tops on the chart.

Trend Line Breakout

If you are able to draw a bearish trend line through your

descending tops, your trade exit will be very easy to attain.
Simply stay in your trade until the price action closes above
the bearish trade.

Ascending Top

If you are unable to draw a trend line due to uneven

descending tops on the chart, you have a second option to
exit your trade.

Carefully follow the price action on the chart and close your
short trade when you see an ascending top on the chart. In
other words, if the price action breaks the level of the last top
on the chart, you exit the trade.

Descending Tops Trading

Example

Let’s now apply these rules into a complete descending tops

trading strategy:
Descending Tops Trading Example

Above is the 5-minute chart of Netflix from July 21, 2016. The
image starts with the beginning of a selloff and ultimately a
confirmation of a descending tops pattern (3 black arrows).

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After the pattern is confirmed, we short NFLX and place a

stop loss above the confirmation (third) top. The price starts
decreasing afterwards and a bearish trend line is created
(blue).

We stay in the trade until the price action breaks the bearish
trend line in a bullish direction.

Two Simple Ways to Trade

Descending Tops

Now that you are familiar with the descending tops pattern, I
will now show you how to combine the pattern with two
additional trade indicators.

These two indicators are:

 Channel Indicator

 Descending Tops Breakout Indicator

Strategy #1 – Descending Tops

Channel Trading

This is a trading strategy where we use the descending tops

in a combination with the channel indicator. The descending
tops channel trading can act as a leading indicator for
opening short trades.
 Descending Tops – Channel Entry

The first thing you need to identify on your chart to enter a

trade is two tops where the second is lower than the first.

Notice that we are only using two descending tops and not
three as before.

You will then need to identify the bottom between the two
tops and draw a horizontal support line. You can then use a
break of the support line as a trigger for opening the short
position.

But why so early?

Since you have two descending tops on the chart you are
able to draw a bearish line.

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Once the price breaks the support line, you can then draw
the support line for the pattern.

The downtrend line of the two tops and the support line of
the lows creates the downtrend channel.

Descending Tops Channel – Stop Loss

A good place for your stop loss in this strategy is above the
second top on the chart. As the stock continues to make
lower lows, you will want to place your stop above the most
recent high.

Descending Tops Channel – When to Exit

the Trade

As you know, you cannot stay in your trades forever.

Therefore, we will now approach a way to exit a descending
tops channel trade.

Simply follow the price behavior on the upper channel level.

Whenever you see a candle closing above this level, you
should exit your trade on an assumption that the price might
reverse.

Descending Tops Channel – Trading Example

Now let’s walk through these trading rules in more detail:

Descending Tops Trading Channel

Above is the 1-minute chart of Apple from December 22,

2015. The image shows a descending top channel trade.

See that we have marked the bottom between the two tops
with a blue horizontal level. This is our support, which is the
trigger for our short trade. If the price breaks this level
downwards, there is a high likelihood the price will create a
lower low on the chart.

The price breaks the blue support and we short AAPL on the
speculation that the stock will create a lower low

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We place a stop loss above the last top as shown on the
image. The price then drops and creates a lower bottom, thus
confirming the bearish channel on the chart (pink parallel
lines).

The channel continues further and the price bounces up and

down. The interactions with the channel levels are pointed
with the black arrows on the chart.

We hold the trade until the price closes above the upper level
of the descending channel. This happens in the red circle on
the chart and we exit our short trade.

Strategy #2 – Descending Tops

Breakout Trading Strategy

Another descending top trading strategy is to trade the

breakout. In other words, you are trading the reversal move
at the end of the descending tops pattern.

Descending Tops Breakout – Entry

To enter a trade, you should wait until the price action breaks
the trend line of the descending tops pattern. If you are
unable to put a straight line through the price’s tops, then
you should identify an ascending top to enter a breakout
trade.

Descending Tops Breakout – Stop Loss

In this case, your stop loss order should be placed below the
last bottom on the chart.

Descending Tops Breakout – Taking Profits

You should stay in the trade as long as the price is making

higher lows.

If the price action breaks a bullish trend line – you close the
trade. If the price action creates a lower low – you close the
trade.
Descending Tops Breakout

Above you see the 2-minute chart of Oracle Corporation. The

image covers July 25, 2016.

The chart starts with a descending tops pattern, which is

marked with a perfect blue bearish trend line on the chart. If
you consider the trend line as a reliable indicator, you should
buy ORCL as shown on the image.

If you don’t trust the trend line, you should buy the stock the
moment the price action breaks the black resistance, which
marks the last top on the chart. The breakout through
resistance creates a higher top.

On the way up, the price action enters a bullish trend. We

have two alternatives to exit this trade. The first one is to
stay until the price action is above the trend line. In other
words, you should close the trade when you see a candle
closing below the pink trend.

If you don’t trust the trend line, then you should hold the
trade until the price action breaks the small black support,
which marks the last bottom during the trend. This would
mean that the price action creates a lower bottom, indicating
a reversal.
Conclusion

1. The descending tops chart pattern is associated with

bearish trends.

2. To identify descending tops, you need to spot a price

top, followed by a lower top.

3. The confirmation of the descending top pattern comes

with the third top, which is supposed to be lower than its
ancestor.

4. To trade a descending top pattern, you have to follow

these rules:

 Open a trade when the price creates a third lower top

and bounces downwards

 Place a stop loss above the last top

 Stay in the trade until the price action breaks the bearish
trend line (if any), or until an ascending top appears on
the chart

5. Two methods for trading descending tops is by applying

the following indicators:

 Channel Indicator

 Descending Tops Breakout Indicator

Descending Triangle – Learn 5
Simple Trading Strategies

D escending triangle pattern is a type of chart pattern

often used by technicians in price action trading. The

descending triangle chart pattern forms at the end of a
downtrend or after a correction to the downtrend. The
descending triangle pattern is the opposite of the ascending
triangle pattern. This pattern is known as the bearish triangle
descending pattern.
Chart technicians can make use of the descending triangle
pattern in order to trade potential breakouts.

Contrary to popular opinion, a descending triangle can be

either bearish or bullish. Traditionally, a regular descending
triangle pattern is considered to be a bearish chart pattern.
However, a descending triangle pattern can also be bullish. In
this instance it is known as a reversal pattern.

Descending triangle stock pattern can be viewed as either a

continuation pattern or a reversal pattern. The triangle
continuation pattern is your typical bearish formation. This
pattern occurs within an established downtrend.

On the other hand, a descending triangle breakout in the

opposite direction becomes a reversal pattern.

A very important fact to bear in mind when trading the

descending triangle is that, it is very subjective. Therefore if
you are new trading the descending triangle stock pattern,
you need to have a lot of practice. Familiarizing oneself with
the triangle pattern trading can allow the trade to build their
own custom triangle trading strategies.

Characteristics of a descending
triangle pattern

The classic descending triangle pattern forms with a trend

line that is sloping and a flat or a horizontal support line. The
pattern emerges as price bounces off the support level at
least twice. The descending triangle chart pattern occurs
after the end of a retracement to a downtrend.

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The downside breakout from the support triggers a strong

bearish momentum led decline.

However, this textbook pattern seldom occurs in the real

markets. In most cases, a descending triangle pattern can
also see a sloping base as well. Instead of a flat support level,
you can see higher lows being formed.

The illustration below shows an “ideal” descending triangle

pattern and a more commonly occurring descending triangle
pattern.
Example illustration of a classic descending triangle pattern

Typically, the breakout from a descending triangle is

triggered to the downside. The distance from the support to
the first high is measured. This measured distance is then
projected to the downside where the target price can be set.

Not all descending triangles breakout to the downside. You

can also see an upside breakout from the descending
triangle. In this case, it becomes a continuation pattern
instead of a reversal pattern. The same concept of measuring
the distance from the support to the first high is used.

This is then projected to the upside for the minimum price

objective.

In the next section of this article, we illustrate five

descending triangle trading strategies that can be used.
1. The descending triangle pattern
breakout

As the name suggests, the descending triangle pattern

breakout strategy is very simple. It entails that the trader
anticipates a breakout from the descending triangle pattern.
This strategy uses a very simple combination of trading
volumes and asserting the trend. The descending triangle
pattern breakout can be used to capture short term profits.

The first step in trading this strategy is to pick a stock that

has been in a downtrend or in a consolidation phase. The
time frame of the chart is irrelevant as you can use this
strategy across any time period. Once you have identified a
stock and the time frame wait for price action to consolidate.

The trader needs to allow for some flexibility in charting the

descending triangle patterns. Simply watch for lower highs
and lower lows being formed. Once you have identified this
price action, the next step is to draw or chart the descending
triangle pattern.

The basic premise of using this strategy is to look at volume

once the triangle pattern has been observed. You can
typically observe that volumes begin to fall toward the end of
the descending triangle pattern formation.

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The chart below shows an example of the Microsoft (MSFT)
daily stock chart. In the chart, you can see that the triangle
pattern was formed after price action was trading sideways.
After a brief spell, price falls lower before breaking out from
the pattern.

Descending triangle pattern breakout strategy

Volumes are usually lower closer to the breakout. Once you

identify the lower volume, simply measure the distance from
the first high and low. Then you simply project the same from
the breakout area which becomes your target price.

This simple volume based descending triangle pattern is easy

to trade but requires lot of time to watch the charts.
2. Descending triangle pattern
with Heikin Ashi charts

Using Heikin Ashi charts along with the descending triangle

pattern you can develop a powerful but simple trading
strategy. Heikin Ashi charts visually stand out compared to
the conventional chart types.

One of the main characteristic unique to Heikin Ashi charts is

the fact that they can depict the trend easily. Most traders
often struggle when it comes to identifying the trend. You
can resolve this confusion by switching to Heikin Ashi charts.

In this strategy, traders simply need to wait for the

descending triangle pattern to be formed. Once the pattern
has been identified, the next step is to wait for the bullish
trend to pick up. In most cases, you will find that the Heikin
Ashi candlesticks turn bullish prior to the breakout. This can
be used as an initial signal to prepare for long positions in
anticipation of a breakout.

The next chart below shows the Heikin Ashi chart for Alcoa
(AA) on the 60-minute time frame. You will see that prior to
the breakout, the Heikin Ashi candlesticks turn bullish.
Descending triangle pattern with Heikin Ashi candlesticks

The projections are based on the same strategy as before.

Measure the distance from the first high to the first low and
project the same from the anticipated breakout level.

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Wait for the breakout from the descending triangle pattern.

Initiate a long position after the first bullish Heikin Ashi
candlestick. Project the measured distance from the breakout
to get the target price.

Depending on your charting platform, you will notice that

volume bars also change. This is because they reflect the
bullish/bearish sentiment based on the Heikin Ashi
candlesticks. Volume bars serve an additional purpose to
alert you to a potential bullish breakout.

This descending triangle strategy with Heikin Ashi charts is

effective to trade in the short term.

3. Descending triangle with

moving averages

Traders and intraday speculators can also combing price

action techniques and chart patterns with technical
indicators. Moving averages, as one might know is one of the
oldest and simplest of technical indicators to work with. In
this descending triangle pattern strategy, we make use of the
well known exponential moving average indicator.

It is important to note that in this trading strategy, we use

the descending triangle pattern to anticipate potential
breakouts. The moving average indicators serve the purpose
of triggering the signal to initiate a trade.

In the following example, we use a 60-minute stock chart for

General Motors (GM). We use a 10 and 20 period exponential
moving average. Traders can experiment with their own
settings on the period of the moving average; this depends
on the time period that you use. For example, for a daily
chart time frame, you can use the 10, 20 or 20 and 50 period
settings.

Also note that using small periods (less than 10) could make
your moving averages more sensitive to noise.
Descending triangle with moving averages

The above chart shows the 10 and 20 period EMA applied to

the chart for GM. Notice that prior to the break out the
moving averages signal a buy. The moving averages can be a
great source to alert you when to initiate a trade.

There is no need to make use of volumes when trading with

this strategy. Also note that you will not always see a bullish
signal from the EMA’s prior to the breakout. After you get a
bullish EMA signal and a breakout, it is an ideal signal to
trade.

Projections and target price level methods remains the same

as outlined in the initial strategy.

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4. The Descending triangle
reversal pattern at top

You can identify the descending triangle reversal pattern at

the top end of the rally. This pattern emerges as volume
declines and the stock fails to make fresh highs. The pattern
indicates that the bullish momentum is exhausting. At the
same time price action forms a horizontal support level.

After price bounces off the support level multiple times,

posting lower highs, we can anticipate a potential downside
breakout. The minimum distance that price moves prior to
the breakout is measured from the initial high. This distance
is projected lower after price breaks out below the support
level.

The descending triangle reversal pattern can be very easy to

trade if you spot the pattern ahead of the breakout.

The next chart below illustrates the descending triangle

reversal pattern in play. The stock chart for Morgan Stanley
(MS) shows that after a strong rally, price stalls near the
highs. Notice the support level that also stands out.
The Descending triangle reversal pattern at top

The resulting bounce, off the support level leads to a lower

high. Following this, price breaks down below the support
with strong momentum. As you can see, the minimum
measure distance is nothing but the project from the initial
high.

5. Descending triangle reversal

pattern at bottom

The descending triangle reversal pattern at the bottom end

of a downtrend is the opposite. In this case, you will find that
price action stalls at the end of a downtrend. A horizontal
support level marks a bottom in price.

Multiple attempts to the upside lead to lower highs.

Subsequently price action eventually breakouts to the upside
from the descending triangle reversal pattern at bottom.
Unlike the strategy mentioned previously, in this set up, you
can trade long positions.

Traders can anticipate a potential upside breakout and trade

the pattern accordingly.

Descending triangle reversal pattern at bottom

In the above chart set up for Goldman Sachs (GS), you can
see how price fall to the lows establishing support. The
horizontal support level holds the declines where the bounce
off the support level leads to lower highs.

Eventually, price action breakouts from the sloping trend line.

Measure the distance from the horizontal support to the
initial high and project this distance from the breakout level.
The projected distance becomes your target price level.
Tips when trading the descending
triangle pattern
Subjectivity is essential when trading the descending triangle
pattern. Traders who wait for the “classic” descending
triangle pattern will often find themselves on the sidelines.

Familiarity and experience are the best ways to trade with

the descending triangle pattern. The descending triangle
pattern is also know as a measured move chart pattern. A
measured move chart pattern is when you measure the
distance and project the same from a breakout.

Many other trading strategies can blend well with the

descending triangle chart pattern. It fits perfectly well within
an investor’s buy and hold strategy. The triangle pattern also
works with technical analysis which can complement the
fundamental analysis as well.

In conclusion, the descending triangle pattern is a versatile

chart pattern which displays the distribution phase in the
stock. Following a descending triangle pattern, the breakout
is often swift led with momentum. This can lead to strong
results when one becomes familiar with the trading strategies
outlined.
 Descending Triangle Pattern
The descending triangle pattern is a continuation chart pattern that develops in

the middle of a downtrend. However, in some instances, this can play as a

descending triangle reversal. Also known as the bullish descending triangle

pattern.

The descending triangle stock pattern is a versatile chart pattern that is viewed as

a continuation pattern and a reversal pattern at the same time.

The reversed version of the descending triangle is the ascending triangle

pattern that we have extensively talked about.

The main features of the descending triangle pattern are:

 A flat support line.

 A descending trend line that connects a series of lower highs.

 The flat support line and the descending trend line converge to a point.

Imagine that, at the top of the descending triangle chart pattern, there is a

downtrend composed of a series of lower highs that are connected by a trend line

sloping downwards. At the bottom, there is a solid floor of support that is tested at

least 3-4 times. The support level is the bottom from where the price couldn’t

push any lower. Below you can see the ideal descending triangle chart setup:
As we stated before, this chart pattern operates on a one minute chart,

five-minute chart, all the way up to higher time frames. Whether you’re

scalping or swing trading, you can use it with multiple assets. This

includes individual stocks, global indices, commodities, Forex, or

cryptocurrency.

The psychology behind this pattern can be explained with the

fundamentals of the supply and demand imbalances. You can see the

technical analysis descending triangle as a pause of the downtrend. It’s

easy to understand how the demand gets drained during the

development of the descending triangle.

This compression to the downside is what makes the pattern bullish.

Remember: all continuation patterns, such as the bullish flag, rectangle

pattern, and others you can find on our Trading Strategy Guides website,

must have the context of a trend.

See the chart below:

Descending Triangle Reversal

First, let's study the case of the descending triangle reversal. Typically,

the descending triangle is more powerful when traded in the context of a

trend. It's also more powerful when traded in the direction of the

prevailing trend.
However, the descending triangle reversal pattern can potentially reward

you with bigger profits if traded in the right context. We only trade the

descending triangle reversal pattern when this price formation develops

at the end of a bullish trend, and in the context of an uptrend.

The reversal chart pattern emerges as the buying activity declines and

the market fails to make fresh new highs. This shows that the supply-

demand imbalance is shifting in favor of the sellers as buyers get

exhausted.

In this case, we’re going to be looking for the flat bottom to get

conquered by the bears. The potential support breakout can signal a

powerful trend reversal.

Let’s look at an example of a day trading opportunity to catch a reversal

using the descending triangle on an intraday time frame.

See the Forex GBP/USD chart below:

When trading the descending triangle pattern, we’re always looking for

the support breakout to give us a potential entry point. Unlike the

textbook saying that teaches retail traders that a support or resistance

level gets stronger if we have multiple retests; contrary to that the

reverse is true.

Note: The more a support level is tested the weaker it becomes.

Additionally, the breakout candle must also produce a close below the

flat support level for a valid trade setup.

But, that’s not all.

We have to take it one step forward and confirm the breakout by using

the Chaikin Money Flow indicator to confirm the supply-demand

imbalance. The readings that we get from the Chaikin Money Flow will

tell us if the sellers have stepped in or not.

You only have to check if the Chaikin Money Flow line has spent more

time below the zero line during the time the descending triangle

emerged. A reading below the zero line indicates selling pressure.

See intraday chart below:

For our exit strategy, we’re going to use one of our favorite trading

techniques. Instead of focusing on a static and random profit target,

we’re going to use the dynamics of the price action to obtain more

accurate profit targets.

To get our profit target simply measure the depth of the triangle. Just

count how many pips there are from the flat support line to the highest

point of the triangle. Once you have that measurement, project it to the

downside starting from the flat support level.

See the chart below:

You can see how the projected triangle depth measurement becomes a

very accurate profit target. This is a powerful exit strategy that can

maximize your profits.

Let’s now stop for a second and see how to trade the right way the

descending triangle as a continuation pattern.

Descending Triangle Trading Strategy

It’s important to remember that the descending triangle chart pattern is

traditionally used to anticipate potential breakouts in the direction of the

bearish trend. In the following example, we’re going to combine the

descending triangle with the power of technical indicators.

Using the Chaikin Money Flow indicator, along with the descending

triangle breakout creates a very powerful trading strategy. One of the

main characteristics, unique to the Chaikin Money Flow indicator, is its

ability to gauge the buying and selling power.

Most retail traders struggle to gauge the supply and demand equation in

the market. You can resolve this struggle by switching to the Chaikin

Money Flow.
In this strategy, traders simply have to see an agreement between the

support breakout and the Chaikin Money Flow reading. Once the

descending triangle breakout happens, we need to have a Chaikin

Money Flow reading below the -0.2 level.

The profit target projection is based on the same exit strategy we used

previously. Measure the triangle depth and project the same price

distance starting from the flat bottom.

Conclusion – Descending Triangle Chart Pattern
Trading involves risk and hard work. Make sure you first get familiarized

with the descending triangle pattern before you commit any real money

with this chart pattern. Stop looking for the Holy Grail and learn how to

trade like the pros do. Use these simple trading tricks that are very

powerful when used in the right context. Be sure to read our latest article

on Technical Analysis Strategies.

The descending triangle chart pattern can be combined with your

preferred trading strategy. Once you learn to identify them and train your

eyes to see them in real-time it will help you better understand the price
action. The supply and demand imbalances inside the descending

triangle reversal will almost always generate fast and furious breakouts.

Descending Triangle
As you probably guessed, descending triangles are the exact
opposite of ascending triangles (we knew you were smart!).

In descending triangle chart patterns, there is a string of lower

highs that forms the upper line. The lower line is a support level in
which the price cannot seem to break.

In the chart above, you can see that the price is gradually
making lower highs which tells us that the sellers are starting to gain
some ground against the buyers.
Now most of the time, and we do say MOST, the price will
eventually break the support line and continue to fall.
However, in some cases, the support line will be too strong, and the
price will bounce off of it and make a strong move up.

The good news is that we don’t care where the price goes. We just
know that it’s about to go somewhere.

In this case, we would place entry orders above the upper line (the
lower highs) and below the support line.
In this case, the price ended up breaking above the top of the
triangle pattern.

After the upside breakout, it proceeded to surge higher, by around

the same vertical distance as the height of the triangle.

Placing an entry order above the top of the triangle and going for a
target as high as the height of the formation would’ve yielded nice
profits.

Descending Triangle Pattern

A descending Triangle Pattern is the exact opposite of the ascending

triangle pattern. It is a bearish continuation pattern indicating that the prior

downtrend will continue. It is created by a horizontal support line that is

drawn along the swing lows, and a falling down trendline that is drawn

along the swing highs as shown in the image below:

A trader usually enters the trade on the short side, if the horizontal support

line is broken down on the downside. The stop-loss in this case would be

the upper down trendline. The target would be the widest part of the

triangle.

If a breakout happens on the upside of the descending trendline, a long

entry can be taken and a stop-loss can be put below the horizontal support

line. Again the target would be the widest part of the ascending triangle.

Ascending and Descending Triangle Patterns – A comparison

An ascending triangle generally happens in an uptrend and is a bullish

pattern usually traded on the upside while a descending triangle generally

happens in a downtrend and is a bearish pattern usually traded on the

downside. Both patterns can however be used as reversal patterns,

however the use of that is rare.

D DESCENDING TRIANGLE t & How to

The descending triangle (also known as the ‘falling
triangle’) is one of the top continuation patterns that
appears mid-trend. Traders anticipate the market to
continue in the direction of the larger trend and develop
trading setups accordingly.

Descending triangle main talking points:

 Definition of a descending triangle

 Identifying a descending triangle pattern on forex charts
 How to trade the descending triangle
 Advantages and limitations of the descending triangle

WHAT IS A DESCENDING TRIANGLE?

The descending triangle is a bearish pattern that is

characterized by a descending upper trendline and a flat
lower trendline that acts as support. This pattern indicates
that sellers are more aggressive than buyers as price
continues to make lower highs. The pattern completes
itself when price breaks out of the triangle in the direction
of the overall trend.
HOW TO IDENTIFY A DESCENDING TRIANGLE PATTERN
ON FOREX CHARTS

The descending triangle is fairly easy to spot once traders know

what to look for. The below method can be applied to all
financial markets as well as forex.

1. Downtrend: The market must be in a downtrend before the

descending triangle pattern appears. This is important and
emphasises that traders should not simply trade the pattern
whenever the descending triangle appears.
2. Consolidation: The descending triangle then appears while
the market enters the consolidation phase.
3. Upper trendline: While the market is consolidating, a
downward sloping trendline can be drawn by connecting the
highs. This downward sloping trendline shows that sellers are
slowly pulling the price down – which provides further support
for a bearish trading bias.
4. Lower trendline: The lower trendline acts as support. Price
often approaches this level and bounces off until the breakout
eventually occurs.
 5. Trend continuation: After price posts a strong break below
the lower trendline, traders will look for confirmation of the
pattern via continued downward momentum.

DESCENDING TRIANGLE MEASURING TECHNIQUE

The descending triangle, often referred to as the ‘falling

triangle’, has an inherent measuring technique that can be
applied to the pattern to gauge likely take profit targets.

For the descending triangle,traders can measure the distance

from the start of the pattern, at the highest point of the
descending triangle to the flat support line. That same distance
can be transposed later on, starting from the breakout point
and ending at the potential take profit level.

The illustration below shows the distance from A to B can be

transferred lower down, from C to D, in order to project a
possible take profit level.
HOW TO TRADE THE DESCENDING TRIANGLE

When trading the descending triangle, traders need to identify

the downtrend and this can be seen in the EUR/USD chart

below. Thereafter, the descending triangle appears as the forex

candlesticks start to consolidate. The measuring technique can

be applied once the triangle forms, as traders anticipate the

breakout.

After viewing a strong break below support, traders can enter a

short position, setting a stop at the recent swing high and take

profit target in line with the measuring technique.

 ADVANTAGES AND LIMITATIONS OF THE DESCENDING

TRIANGLE

The descending triangle pattern can be a great indicator of

trend continuation, but it does have its limitations too:

ADVANTAGES LIMITATIONS

Easy pattern to identify False breakouts are possible (traders

need to manage risk accordingly)

The descending triangle produces a There is always a chance that price

clear target level – based on the max moves sideways for an extended period
 height of the descending triangle of time or even moves higher

Since this is an intermediate-term

pattern, traders have the option to trade

within the triangle but should filter

trades in the direction of the trend

BULL DESCENDING TRIANGLE

The Descending Triangle as a price pattern is fairly common as it

presents frequently in all markets, time frames, & price ranges and tends

to provide a great reward-to-risk ratio. Their versatility has

made Descending Triangles available as either a bullish or bearish

trend continuation pattern or a reversal pattern depending on the trading

environment in the background.

Visually Descending Triangles are characterized by a series of lower

highs but the same lows. The horizontal lower trendline will experience
multiple efforts as price support. The shape of the Descending

Triangle is altered by the slope of the descending resistance line

which ‘converges’ or; is inclined toward, the lower support line.

Descending Triangles vary in their duration, but will have at least two

swing highs and two swing lows in price. Traders should be prepared to

adjust the trendlines as needed with additional swings. Volume usually

diminishes as the pattern develops. Buyers & sellers create this range-

bound price action and eventually prices squeeze to an Apex. The

closer to the apex price gets the odds for a break of the immediate price

range become more likely.

Traders can look to trade the Descending Triangle in numerous similar

methods regardless of market environment but with several nuances

can ‘stack the deck’ which increases the risk-to-reward ratio for profits.

One of the best Descending Triangle performers statistically is

the bullish continuation pattern seen in an uptrend.

The bullish continuation pattern has 3 phases:

1) Background: A Strong impulsive, thrusting action with a surge in

volume & price establishes a clear picture of the controlling bullish trend

direction. In our descending triangle price pattern it is represented

visually by a Pole. Higher and more drama the better as the Pole is the
Key to recognizing the potential for the continuation of the pattern. The

Pole represents trend direction as well as its strength & often this pattern

is initiated as a new breakout in price from an established bullish base of

support.

2) The second phase is a pause for consolidation of the action both in

volume & price and is represented by the descending triangle. As traders

we like to see this phase very short in duration with only 2 or 3 swings

while our price action is range bound maintaining the lower highs but

the same lows shape and the volume is ‘resting’. The best breakouts

occur at 50-75% of the triangle completion. Caution if the breakout is

delayed until prices crowd into the apex as it is an indication of ‘balance’

or indecision between buyers & sellers.

3) The pattern confirms as a bullish continuation pattern if the action

creates a new bullish breakout with a surge again from the bulls in both

volume & price. The immediate upper resistance outlined by the

descending triangle is the area traders look to see confirm the breakout.

Typically the action will mimic the volatility & energy experienced with

the Pole creation. Volume considerations aid in recognizing further

potential for the pattern.

Options for Trading the Descending Triangle as a bullish continuation

pattern:

There are two methods of trading this pattern and it depends on your

trading style.

Aggressive traders will enter long trades right around the lower

horizontal support trendline once sufficient support has confirmed. The

concept is that the trend is on your side and the bulls are maintaining a

‘line in the sand’ support line higher than previous.

This is a very accurate trade that usually has a great risk:reward ratio.

Stop placement can be fairly tight right below support & can be adjusted

upward accordingly. Note there is a ‘mid-line’ created using the apex as

the measurement & traders can gauge success of the immediate swing

based on this incremental value. When price approaches the upper

descending resistance line you should gauge the momentum: if you see

that the momentum is strong stick to the position. However, if you see

that resistance prevails, close the trade & take your profits to maximize

the reward.

The aggressive trading method can highly increase the profit potential of

any triangle, as you can trade the same pattern several times & profit

from the ranging swing movements inside the pattern. However,

 remember that as a trend continuation pattern traders want this

consolidation triangle formation to be relatively brief. Two or 3 swings

may turn into more with this triangle but the 50-75% formation concept

aids trade consideration.

Conservative traders will enter a trade once the upper descending

resistance line has been broken &/or the new breakout has confirmed.

False breakouts do happen and confirmation needed is always a traders’

choice. Several methods that apply here for either intrabar &/or close bar

options offered in sequence: breakout above resistance price, retrace

holds line, price clears breakout swing high price, larger chart

combination.

Stop placement considerations can be raised aggressively after the

breakout of the price.

Measured Move Targets based on structure of Pole & the Bull

Descending Triangle

Aggressive with Momentum & Volume: duplication of the original move

or trader choice measurement of the Pole:

 Pole measure (added to) Apex or BreakOut price = target

 Pole measure = (Pole Tip price (minus) Pole Base price)

 Conservative:

 Descending Triangle measure (added to) Apex or BreakOut price =

target

 Descending Triangle measure = (swing high price of

triangle (minus) swing low price of triangle)

Examples: Descending Triangle as a bullish continuation pattern:

 Reversal Descending Triangle
Trend
There must be a trend on the market to talk about a trend
reversal pattern. The share price enters the pattern from below.

 Role: Reversal
 Expected trend: Bearish
 Previous tren: Bullish
 Reliability: Moderate
 Pattern: Triangle
 Reversal Descending Triangle Example

Bottom horizontal line

There must be two minimum values to form the bottom line.
These minimum points are not necessarily in line, but they
must move within a given range. A certain distance must be
between the maximum and minimum values.

Top trendline
There must be at least two maximum values to form the top
trendline. These maximums are decreasing over time and they
have a given distance between them. If the next wave’s
maximum points are in the same height or above the previous
ones, the pattern cannot be a reversal triangle.

Duration
The duration can last from a few weeks to a few months.

Volume

The trading volume decreases as the pattern develops. There

can be a bottom breakout only if there is a high volume. A
volume-based confirmation is not necessary, but highly
recommended.

Pullback to the breakout

According to the technical analysis principles, the support line

changes into resistance line and resistance line changes into
support line. When the price breaks the bottom horizontal line
of the triangle, it will act like a resistance. Sometimes the share
price returns to this line before it starts decreasing.

Target price

The basis of the target price calculation is the group of

days with large trading volume at the beginning of the
pattern.

General Rules for triangles

Trend: In order to qualify as a continuation pattern, an

established trend should exist. The trend should be at least a

few months old and the symmetrical triangle marks a

consolidation period before continuing after the breakout.

Four (4) Points: At least 2 points are required to form a trend

line and 2 trend lines are required to form a symmetrical

triangle. Therefore, a minimum of 4 points are required to

begin considering a formation as a symmetrical triangle. The

second high (2) should be lower than the first (1) and the upper

line should slope down. The second low (2) should be higher

than the first (1) and the lower line should slope up. Ideally, the

pattern will form with 6 points (3 on each side) before a

breakout occurs.

Volume: As the symmetrical triangle extends and the trading

range contracts, volume should start to diminish. This refers to

the quiet before the storm, or the tightening consolidation

before the breakout.

Duration: The length of the triangles can range from a few

weeks to many months, with the average pattern lasting from

1-3 months.
Here we have discussed triangles as continuation patterns. But,

triangles can be continuation as well as reversal patterns. So

should be used with caution.

Descending Triangle Pattern

The descending triangle pattern is complete when price breaks below

the horizontal support line, and is considered successful if price

continues beyond the breakout point a minimum of the for at least the

same distance as the triangle width.

How To Find Descending Triangles
and How Do They Work
We are looking at the exact opposite of its cousin, the ascending triangle.

The descending triangle is a series of lower highs while new lows are not being
made. (Notice the trend line connects a series of lower highs)

That means that the buyers are putting up a fight as they keep the

market from dropping and sellers can’t yet push the price below the

support level.

The fact that sellers keep the selling pressure on even though lows

aren’t being made (but neither are new highs), shows that the

descending triangle is a bearish pattern.

Why do traders expect a strong breakout?

 Stop loss locations from the buyers that
are supporting price.
I always say textbook trading is not always a smart play because other

traders know your game.

Buyers at support usually keep their stop losses just below support.

Support breaks, stops get hit, and price goes tumbling to the downside.

Like all chart patterns, including the other triangle patterns I covered, if

you have to search and squint for the pattern, it isn’t there.

The best patterns are the obvious ones.

Trading The Descending Triangle –

Let’s Look At Strategies
Since we are looking for a break of the support line, many traders

will trade the breakout of the descending triangle.

Let’s look at that strategy.

Not a picture perfect descending triangle (very seldom are they), but the

concepts are the exact same and we can draw a descending trend line

to connect lower highs.

The breakout strategy is to place a sell stop just below the support level.

If/when the support breaks, the stops get hit and price drives

effortlessly in your direction.

In theory.

The truth is, depending on where the breakout candlestick originates

from, a snap back in price is a very real event. Our stop loss would be

above triangle (I use ATR stops) and though it is not challenged, this

snap back in price can spook a trader.

 Many traders, if they don’t get positive feedback on the trade, will market

out of the position.

My Risk Increased!

Another very real event, one that concerns me, is the reality of slippage.

You may not see slippage in the Forex market (but will have to deal with

increasing spreads during higher volatility times) but in futures and other

markets, it’s a threat.

If I am risking 1% of my account and have a 100 pip stop from entry

(using a FX example), when price breaks with slippage I may get filled

20 pips lower. This will increase my risk percentage which,

depending on your overall portfolio risk, can be an issue.

The good thing about playing the actual breakout is you will participate in

100% of the extended runs that can occur.

Watch The Break, Play The

Pullback
You’ve heard it a thousand times, “breakout pullback.”

What does that mean?

1. Price breaks support and heads to the downside
2. Price runs back towards the breakout zone around the support level
3. Trade the continuation back in the direction of the break
This is a time tested trading strategy for all types of breakout trading.

If you played the initial break short, you sat through a small

range and then the pullback occurred.

How would you enter a breakout pullback setup?

As price is pulling back as seen with the green circle, you

can draw a trend line to show the bear flag. When the trend

line breaks, you can enter the trade.

Traders will also use price action such as failure tests and

momentum candlesticks for an entry trigger.

 Do you see a downside to trading the
breakout/pullback?
 You may have a market that breaks out and keeps running
 You need to determine what a pullback looks like; how far it pulls back,
how long it takes
 You must have a trigger into the trade; candlestick patterns, small range
breaks…….

The issue of a stop loss should always be a consideration.

Price pulling back above the support line of a descending triangle does
not mean the breakout failed. Make sure your stop is away from the
noise.

I have always advocated for the use of the average true range to place
your stop loss.

Enter Before The Breakout – It Can Be

Done
There is a lot of volatility around breakouts at times as well as times the
breakout will just fail.

What makes sense is to find a logical area to put your trade on before
the breakout. Why?
 Traders won’t have slippage but can take advantage of slippage while
in the trade – quick gains
 There can be room to manage a trade
 A trade that would be a loser could give you a small profit

Sound to good to be true?

Let’s talk about basing.

What Is Basing And Why You
Should Love It
Basing is when price forms a small range just above the support zone
(for support level breaks, descending triangles, range breakouts
downside).

Basing is an accumulation of positions while price is a few points/pips

away from an actual breakout.

What a trader will essentially look for is a range of price action that takes
place closer to the support zone of the descending triangle. I prefer it to
not exceed the half way point of the entire pattern and the closer to
support, the better.

Look for price action inside the range to find an entry. Can you see
where you would enter inside of the blue box?

Trading one chart pattern to enter

another pattern.
 All we are doing is using a horizontal range chart pattern to enter the
descending triangle chart pattern before the triangle breaks.
If a trader is already short and the breakout fails, there is room to cut risk

drastically in the trade or exit with a small profit.

Remember the clustered stops below support?

Those, along with the “textbook” breakout traders, will help propel your
trade into profit.

Speaking Of Profit Taking….

Unless you are a trend follower (who generally do not use profit orders),
you want a place to exit your trade.

There are several ways:

 Multiple of risk
 Targeting former support levels below your trade
 Trailing stops
 Pattern profits

Let’s look at pattern profits.

Traders will take the height of the pattern using the support zone to the
highest high of the pattern (usually the last swing high before the lows).

Project the height downwards from the bottom of the support zone.

You can see in this chart that price stalled at the price target took
another leg down, and off to the right, retraced all the way to the support
line.

Can You Disqualify A Trade?

If you traded the breakout by waiting for the close (another viable
strategy that “confirms” a break”, you’d be entering right where the price
projection is.

Keep in mind that price, after a strong momentum move or extended run,
generally will “snap back” against you.

This is why I look for basing – because I can profit when others either
skip a trade or take a loss.
 We Covered A lot….
You can certainly design a trading strategy for yourself surrounding the
descending triangle when looking to short a market.

You should know:



o How you will determine if you have a pattern or not

o What method will you use to enter the trade?
o How will you handle stop losses?
o What is your profit taking plan?
 More importantly, how much will you risk per trade?

The Descending Triangle Chart Pattern

The descending triangle is a bearish continuation pattern that often

appears when a stock is about to move lower. The pattern is relatively

easy to spot because of its same lows and descending highs. When a

stock is exhibiting this pattern, it is a sing of weakness in the stock and

therefore it can warn traders of a drop in the near future. Those who are

holding the stock may want to sell it and those who know how to short

stocks can short the stock.

The chart above shows what a descending triangle looks like. The stock

will be making relatively same lows. However, the highs will be declining.

This is a sign of weakness because each time the stock tries to rally

back up, it makes lower highs. Picture a person trying to throw a

basketball and each time he throws the ball, it goes lower.

You can connect the lows with a horizontal line and the declining highs

with a downtrendline. The stock will usually breakdown after 2/3 of the

triangle pattern. We can consider the stock to breakdown when it goes

below the horizontal line.

The horizontal line is actually a support area and when the stock breaks

below it, it means that support has been broken. Some traders will short

the breakdown and put a stop above the pattern.

In the chart above, AES had a 2 month descending triangle pattern. It

broke down in late October 2017 and proceeded to move lower which

would have made a great trade.

Some descending triangles are longer in duration and some will be

shorter. However, they all have the same features of same lows and

declining highs.
The chart above shows AGN with a descending triangle pattern. Notice

how the stock made the same lows but it started to make lower highs.

The stock broke below the support line and proceeded to move lower.

The chartist can get an initial target for the pattern by taking the height of

the pattern and projecting it from the breakdown to get a target. I

mention it as an initial target because a stock that is in a downtrend

tends to go lower. Traders can often take 1/2 of their position off the

table and ride the other half lower. That is sound trade management.

Another thing that will make the odds go in the favor of the short seller is

to determine whether the stock is in a downtrend. You can often find that

a stock that is below its 20 MA, 50 MA and 200 MA will continue to go

even lower because it is in a downtrend.

Sometimes volume can be a very important clue to the pattern. A

heavier volume as the stock breaks down is a good sign of a bearish

continuation. If you look at the breakdown in AGN above, you will notice

that there is slightly heavier volume on the day of the breakdown.

Conclusion
The descending triangle chart pattern is a very reliable chart pattern that

signals a bearish continuation. It is fairly easy to spot and if you see it in

a stock, do try to take advantage of it by shorting the stock. If you are

holding the stock, it makes sense to lighten on the stock a bit.

Descending Triangle Chart Pattern

The descending triangle is a price pattern made up of two trendlines. A

flat lower trendline which acts as the support and an upper downsloping

trendline which acts as resistance.

The pattern can indicate that the bears are gaining control with lower

highs and weakening support leading to a possible breakout to the

downside.

Descending Triangle Trading Strategy

Now that you know what the descending triangle looks like. Let us look

at two ways of trading the pattern.

Method 1

The first way a trader can look to take advantage of the pattern is to wait

for the price to break below the lower trend line and then go short.
It is always a good idea to wait for the candle to close below the lower

trendline after price breaks out. As this confirms that the bears are in

control.

The Stop-Loss can be placed above the down sloping trend line.

The profit objective can be measured by taking the height of the back of

the triangle. And extending this measurement to the downside where

price broke out from the lower trend line.

Method 2
The second way to break this pattern is to wait for the price to break out
of the triangle as previously shown.

But instead of entering directly after the breakout you wait for the price to

pull back and retest the lower level of the triangle.

In other words you are looking for broken support to become resistance.

The Stop-Loss would be smaller when trading this way as it would go

above the new resistance level.

The profit objective is calculated in exactly the same ways the first

method. By measuring the height of the back of the triangle and

extending this measurement from the breakout point where price broke

the lower trendline.

What the Descending Triangle Shows Us

As illustrated below, the descending triangle is a bearish

continuation chart pattern. The price action trades in a clear

downtrend, as there is a series of the lower lows and lower highs.

The sellers, who are in control of the price action, take a temporary

pause to consolidate their most recent gains before extending the

downtrend lower.

Descending triangles usually take place in a mid-trend, as there is a

first part of the trend - the start of a downtrend, while after the

consolidation phase there is a continuation of the overall trend.

Therefore, the descending triangle is usually in the middle of a

bigger trend that helps the sellers to extend the downtrend.

Consolidation of the price action takes form in the context of a

descending triangle. Two trend lines, that connect the lower highs
and the horizontal support, converge until they intersect. The

narrower the space between the two lines is, the stronger the

breakout usually is.

Consolidation of the price action takes form in the context of a

descending triangle. Two trend lines, that connect the lower highs

and the horizontal support, converge until they intersect. The

narrower the space between the two lines is, the stronger the

breakout usually is.

There are three key features of a descending triangle:

 Strong trend - In order for the descending triangle to exist in the

first place, the price action must stem from a clear downtrend;

 Temporary pause - This element refers to the consolidation

phase, which will help the sellers to consolidate their strength;

 Breakout - The break of the lower flat line marks the breakout,

which activates the pattern. It also helps us determine the entry,

take profit, and stop loss at a later stage.

Given that the descending triangle is a bearish formation, the

likelihood of the trend continuing lower is higher than the chance of

a reversal taking place. In this regard, the descending triangle acts

as a conductor, or a tool for the sellers to help extend the

downtrend.

Even the most aggressive moves in trading don’t occur in the

vertical fashion. The dominant side, in this case sellers, need some

breathing space to regroup for another push lower. These

temporary pauses can take different forms, with the descending

triangle being one of them.

Strengths and Weaknesses

The descending triangle shares the same set of strengths and

weaknesses as the ascending triangle. As outlined earlier, it helps us

define the trading environment as two trend lines provide us with levels

to play against.

Although a failed break of the triangle to the downside can always

happen, the likelihood of the trend continuing in the same direction is

always higher than the reversal. For this reason, descending triangles

are an effective tool that helps us better position our entry, take profit,

and stop loss.

Contrarily, the failed breakouts are the biggest weakness of a

descending triangle. The price action may breakout, and even close

below the lower trend line, but still return to the inside of the triangle. In

order to minimize the chance of a failed breakout, it is always advised to

consult other technical indicators and confirm the breakout e.g.

volume, RSI etc.

Spotting the Descending Triangle Pattern

We said earlier that the descending triangles usually occur in the

mid-trend, as this helps extend the downtrend. In the chart below,

EUR/USD trades lower in a continuous manner. You see that after

a series of the lower lows, the price action makes two equal lows,

allowing for the supporting trend line to be drawn.

Still, the sellers do not allow the buyers to break the series of the

lower highs, which continues until the two trend lines come close to

intersecting. Just before this happens, the sellers are successful in

breaking the triangle to the downside, therefore securing a

continuation of the downtrend.

Spotting the descending triangle is very straightforward and easy.

The first step should be associated with identifying the downtrend.

After that, you should be looking for at least two equal, or close to

equal, lows that help draw the flat supporting line, while the

opposite trend line should be extending lower to reflect the lower

highs.

It is important to note that the lower trend isn’t always completely

flat, as it is difficult to expect precise levels from volatile markets. As

long as the lower trend line is nearly flat, we consider it legitimate.

The break of this line marks the activation of the descending

triangle pattern and the moment when we consider entering the

market to capitalize on the next leg lower.

Trading the Descending Triangle Pattern

One of the biggest advantages of the descending triangle pattern is

that it helps to format our trade as the breakout nears. A break of

the supporting line activates the pattern and offers us two options

for entry, as it is the case with all candlestick chart patterns.

We can either dip into the market immediately after the breakout

candle closes, or wait for a potential throwback. We see that in this

case the throwback - a retest of the broken trend line - never

occurred. Hence, the end result proved that we only had a single

chance to capitalize on the move lower.

Hence, the black horizontal line reflects the entry taken immediately

after the breakout candle on the hourly chart closed. We said earlier

that a move back to the inside of the triangle signals a failed

breakout and invalidates our pattern. For this reason, we place the

stop loss above the broken trend line to protect our capital and limit

potential losses.

The take profit is measured by calculating the distance between the

two trend lines when the triangle was first formed. The same line is

then copied from the level where the breakout occurred, while the
other end of the trend line signals a level where the pattern is

completed.

In our case, the take-profit order (the green line) was hit quite

quickly as the sellers moved the price action lower without much

resistance from the buyers. Finally, we booked 125 pips while we

risked 45 pips on the other hand, which makes a very profitable R:R

ratio of almost 1:3.

Descending Triangle Chart Pattern With Examples

Everything a trader and investor need to know about the descending

triangle chart pattern along with real-life examples

The descending triangle is precisely the opposite of an ascending

triangle chart pattern. It forms within a long term downtrend for bearish

consolidation phase before the stock cracks below the support.

Much like the ascending triangle, the descending triangle forms a

horizontal support line as the base. The highs formed from the bottom
create a lower low. Joining them forms a downward trending trend line. It

is only a matter of time before the support collapses followed by a very

sharp downslide.

Often the descending triangle pattern is often misread even by the

experts as the formation of a bottom after the downtrend.

Examples of Descending Triangle Chart Pattern

Let us look at a few examples of the descending triangle chart pattern to

understand the pattern better. Moreover, we will also understand why it

is common to interpret it wrongly.

Venky’s (India)

First, let us look at the weekly charts of Venky’s, where I have marked a

descending triangle with blue lines. I have taken the period prior to

March 2020 crash to be able to understand the pattern better.

If we analyze the blue segment on the daily charts, this is what we see.
An Eight month-long (Aug to Apr) support of ₹2000 is clearly visible from

the horizontal blue line.

This is when people assume there is a bottom formation.

However, in the weekly charts, we see a sharp fall from ₹4400 to ₹2000.

Such a sharp fall in such a short span of time does mean there are

sellers at higher levels.

After the fall there is stability but then the stability doesn’t get people to

accumulate aggressively and so the peaks are always lower than the

past peaks forming a descending triangle.

Bajaj Consumers
Let us look at the daily charts of Bajaj Consumers, where I have

marked a descending triangle with blue lines.

The support was between ₹200 to ₹220. However, the peaks are always

lower than the past peaks forming a descending triangle.

So, it is a matter of time when the stock crashes below ₹200. Normally

such strong support breaks are with a gap.

How to Invest with Descending Triangle Chart Pattern?

The descending triangle is a consolidation pattern within a downtrend.

So the way to invest using a descending triangle is to accumulate slowly

in a fundamentally sound company that has some hiccups in the short

term.

First, the stock should pass the Investment checklist and basics of

fundamental analysis. Then I look at the business checklist and the rules

of investing.
Then comes the descending triangle under technical analysis to be able

to accumulate the stock which has short-term pain.

Final Thoughts

If one can identify the good companies going through a rough patch in

the short term, one can invest in them.

Example of some DESCENDING TRIANGLR PATTERN
 WEDGE PATTERN

Wedge pattern is a type of chart pattern that is formed by converging two trend lines

Wedges are the type of continuation as well as the reversal chart patterns.

Wedges can be Rising Wedges or Falling wedges depending upon the trend in
which they are formed.

Rising Wedges forms after an uptrend and indicate bearish reversal and Falling
Wedges forms after a downtrend indicate a bullish reversal.

Let us discuss about these two types of wedges and how to trade with
them:

What is a Rising Wedge Pattern?

A rising wedge is formed by two converging trend lines when the stock’s
prices have been rising for a certain period.
Before the line converges the sellers come into the market and
as the result, the prices lose its momentum.

This results in the breaking of the prices from the upper or the
lower trend lines but usually the prices breakout in the opposite
direction from the trend line.

Depending upon the location of the rising wedges it indicates

whether the trend will continue or reverse:

Rising Wedges in Uptrend:

The rising wedge in an uptrend indicates reversal to the
downtrend.

It is formed when the prices are making Higher Highs and

Higher Lows compared to the previous price movements.

It gives traders opportunities to take short positions in the

market.

Rising Wedges in Downtrend:

The Rising Wedge in the downtrend indicates a continuation of
the previous trend.

It is formed when the prices are making Higher Highs and

Higher Lows compared to the previous price movements.

It gives traders opportunities to average or takes short

positions in the market.

What is a Falling Wedge Pattern?

A falling wedge is formed by two converging trend lines when
the stock’s prices have been falling for a certain period.

Before the line converges the buyers come into the market and
as the result, the decline in prices begins to lose its
momentum.

This results in the breaking of the prices from the upper trend
line.

Depending upon the location of the falling wedges its indicates

whether the trend will continue or reverse:

Falling Wedges in Uptrend:

The Falling Wedge in the Uptrend indicates the continuation of
an uptrend.

It is formed when the prices are making Lower Highs and Lower
Lows compared to the previous price movements.

It gives traders opportunities to take buy positions or average

their position in the market.

Falling Wedges in Downtrend:

The Falling Wedge in the downtrend indicates reversal to an
uptrend.

It is formed when the prices are making Lower Highs and Lower
Lows compared to the previous price movements.
It gives traders opportunities to take buy positions in the
market.

Formation of the Rising and Falling

Wedge Pattern:
Below is the formation of the Rising and Falling Wedge pattern
in the uptrend and downtrend:
 Trading with Rising Wedge Pattern:
Below is an example of a Rising Wedge formed in the
downtrend in the Daily chart of Sundaram Finance Ltd.

The below converging line can be called the support line.

When the prices break from the support line then the
continuation of the downtrend is confirmed.

Stop Loss:
Stop-loss can be placed at the upper side of the rising wedge
line.
Price Target:
The price target is equal to the height of the back of the wedge.

Trading with Falling Wedge Pattern:

Below is an example of a Falling Wedge formed in the uptrend
in the Daily chart of Zee Entertainment Enterprises Ltd.
The traders should take a long position when the prices
break above the upper converging trend line.

Stop Loss:
Stop-loss can be placed at the bottom side of the falling wedge
line.

Price Target:
The price target is equal to the height of the back of the wedge.

Frequently Asked Questions

What is bearish wedge pattern?

The Rising Wedge is a bearish pattern that begins wide at the
bottom and contracts as prices move higher and the trading
range narrows
 Is wedge up or down?
The wedge can be both up or depending on the trend in which
they are formed.

What is a bullish wedge pattern?

The Falling Wedge is a bullish pattern that begins wide at
the top and contracts as prices move lower

How do you differentiate between a wedge

and a triangle chart pattern?
A Wedge is similar to a Triangle, the main difference
between the two patterns is the inclination of the two lines
and the pattern itself: all the lines are inclined either
upwards or downwards.

Key Takeaways:
 Wedges are the type of continuation as well as the reversal
chart patterns.
 A rising wedge is formed by two converging trend lines when
the stock’s prices have been rising for a certain period.

 A falling wedge is formed by two converging trend lines when

the stock’s prices have been falling for a certain period.

 The price target is equal to the height of the back of the wedge.
How to Trade the Rising Wedge Pattern
One of the most effective setups for profitable trading opportunities is

the rising wedge pattern.

Wedges form as a stock’s price movements tighten between two sloping trend

lines that are drawn like a triangle.

Many day traders are probably already familiar with rising wedge patterns

(opposite of falling wedge patterns) as they are quite common in the stock

market as well as futures and foreign exchange markets.

The rising wedge, also known as ascending wedge, can be incredibly reliable

and has the potential to generate huge profits if traded correctly as we explain

in this blog post.

Rising Wedge – What is it?

A rising wedge is a bearish stock pattern that begins wide at the bottom and

contracts as trading range narrows and the prices move higher.

This indicates slowing momentum and it usually precedes a reversal to the

downside, meaning that traders can identify potential selling opportunities.

It is characterized by a trend line caught between two upward diagonal price

trend lines of support and resistance that move in a converging pattern. The

upper line is the resistance line, while the lower line is the support line.

Rising wedges signal a bearish reversal, because they are usually

immediately followed by a downward price trend. Falling wedges, on the other

hand, signal a bullish reversal in the prices of securities.

A rising wedge can also fit into the continuation category.

In this case, it will still slope up, though the slope will be against the prevailing

downtrend. Irrespective of the type (continuation or reversal), rising wedge

patterns are bearish.

Why it Forms

The rising wedge chart pattern forms when a stock consolidates between two

converging support and resistance lines.

In this case, the support and resistance lines both have to point in an upwards

direction and the support line has to be steeper than resistance line.

Rising wedges can form when a stock is in an uptrend or downtrend:

 When a stock is rising, they are a sign that traders are reconsidering the bull move.

 When a stock is in a downtrend falling, they are a short-term pause before the bear market

takes hold once more.

Identifying a Rising Wedge Pattern

As earlier mentioned, rising wedge patterns hint towards a bearish market.

When the wedge aligns itself with the current trend, the probability is on the

side of a market reversal.

However, if the wedge is pointing against the trend, the probability lies on the

side of a continuation.

For the rising wedge to be a useful trading signal, it ought to be seen to funnel

the price into narrow range but it does not necessarily have to be a point.

As the wedge forms, the price ought to be making higher lows and higher

highs in a saw tooth pattern.

Here’s how you can confirm reversal and continuation patterns formed rising

wedges:

Reversal Pattern

 Established uptrend

 Rising wedge consolidation formation

Linking higher highs and lower lows using a trend line assembling towards a

narrowing point

 Confirm divergence between price and volume using volume function. You can also

confirm using the Moving Average Convergence Divergence (MACD).

 Overbought signal can be confirmed by other technical tools such as oscillators

 Look for break below support for short entry

Continuation Pattern

 Established downtrend

 Rising wedge consolidation formation

 Linking lower lows and higher highs using a trend line assembling towards a

narrowing point

 Confirm divergence between volume and price using volume function. You can also

confirm using the Moving Average Convergence Divergence (MACD).

 Overbought signals can also be confirmed by other technical tools such as oscillators
 Look for break below support for short entry

Trading the Rising Wedge

Ascending wedges can be one of the most challenging chart patterns to trade

and recognize.

Like most patterns, it is important to wait for a stock breakout and make use of

other technical analysis tools to confirm signals.

In the following section, we will discuss a bit more about how to use these

chart patterns to your advantage.

Bearish Reversal Signal

The important thing to do after spotting this stock trading chart pattern is to be

ready with your entry orders. In the example below, a rising wedge formed at

the end of an uptrend.

You can see how price action is forming new highs, but at a much slower pace

than when price makes higher lows.

Later, the price breaks down to the downside since there are more traders

desperate to short than long. This pushes the price down to break the trend

line, suggesting that a downtrend is likely to occur.

Bearish Continuation Signal

In this next example, the price came from a downtrend before consolidating

and forming higher highs and even higher lows. It later broke to the down side

and the downtrend continued.

Rising Wedge Pattern Confirmation

A rising wedge is considered valid if it has good oscillation between the two

bullish lines. To validate this pattern, each of these lines must have been

touched at least twice.

It must also be remembered that a line is said to be valid if the price line

touches the resistance or support at least 3 times.

Simply put, the rising wedge pattern is said to be valid if the price touches the

support line at least twice and the resistance line 3 times (or touches the

support line at least 3 times and the resistance line twice).

Rising wedge patterns are quite useful in predicting general price trends. This

pattern will breakout towards a reversal more often than two-thirds of the time.

Since the pattern converges to a smaller price channel, the distance between

the price on entry of the trade and the price for a stop loss, is relatively smaller

than the start of the pattern.

This means that you can place a stop loss close by at the time the trade

begins.

Additionally, if the trade is successful, the outcome is likely to yield a greater

return than the amount risked on the trade to begin with.

Bottom Line

Rising wedge patterns are quite common among day traders and they can be

useful at any timeframe.

The formation of these patterns on price charts has been considered an

important sign that a reversal will eventually happen.

But unlike some other patterns that are easier to read, rising wedges may

show some ambiguous behavior that make them tricky to interpret.

Therefore, traders looking to use rising wedge patterns in order to forecast

upcoming price movements ought to carefully consider the length and the

context of the formations in which they occur; and use volume changes and

complementary technical indicators to verify the movements that they appear

to be signaling.

Most importantly, they need to use a stop loss to guard against the effects of

false signals and be ready to adjust their strategies quickly for changing

conditions should these occur.

The Wedge Formation Pattern

 The Wedge Formation is also similar to a symmetrical

triangle in appearance, in that they have converging trend

lines that come together at an apex. However, wedges are

distinguished by a noticeable slant, either to the upside or

to the downside. As with triangles, volume should diminish

during its formation and increase on its resolve. The

Following is a Typical Wedge Formation Trend Pattern

A falling wedge is generally considered bullish and is

usually found in up-trends. But it can also be found in

downtrends as well. The implication however is still

generally bullish. This pattern is marked by a series of

lower tops and lower bottoms.

A rising wedge is generally considered bearish and is

usually found in downtrends. They can be found in up

trends too, but would still generally be regarded as bearish.

Rising wedges put in a series of higher tops and higher

bottoms.
HERE IS A SAMPLE CHART WITH A WEDGE

FORMATION
Trading the Falling Wedge Pattern
WHAT IS A FALLING WEDGE PATTERN?

The falling wedge pattern is a continuation pattern formed

when price bounces between two downward sloping,

converging trendlines. It is considered a bullish chart formation

but can indicate both reversal and continuation patterns –

depending on where it appears in the trend.

Rising Wedge Pattern

The rising wedge pattern is the opposite of the falling wedge

and is observed in down trending markets. Traders ought to

know the differences between the rising and falling wedge

patterns in order to identify and trade them effectively.

HOW TO IDENTIFY A FALLING WEDGE PATTERN

The falling wedge pattern is interpreted as both a bullish

continuation and bullish reversal pattern which gives rise to

some confusion in the identification of the pattern. Both

scenarios contain different market conditions which must be

taken into consideration.

The differentiating factor that separates the continuation and

reversal pattern is the direction of the trend when the falling

wedge appears. A falling wedge is a continuation pattern if it

appears in an uptrend and is a reversal pattern when it appears

in a downtrend.

Continuation or (Reversal) Pattern:

1. Identify an uptrend or (downtrend)

2. Link lower highs and lower lows using a trend line. The two

lines will slope downwards and converge

 3. Look for divergence between price and an oscillator like

the RSI or stochastic indicator

4. Oversold signal can be confirmed by other technical

tools like oscillators

5. Look for break above resistance for a long entry

HOW TO TRADE THE FALLING WEDGE PATTERN

Below are various ways to trade the falling wedge using

technical analysis:

1) Falling Wedge Continuation Pattern

The descending wedge pattern appears within an uptrend when

price tends to consolidate, or trade in a more sideways fashion.

Connecting the lower highs and lower lows will reveal the slight

downward slant to the wedge pattern before price eventually

rises, resulting in a falling wedge breakout to resume the larger

uptrend.

In the Gold chart below, it is clear to see that price breaks out

of the descending wedge to the upside only to return back

down. This is a fake breakout or “fakeout” and is a reality in the

financial markets. The fakeout scenario underscores the

importance of placing stops in the right place – allowing some

breathing room before the trade is potentially closed out.

Traders can place a stop below the lowest traded price in the

wedge or even below the wedge itself. or even below the

wedge itself.

Setting the stop loss a sufficient distance away allowed the

market to eventually break through resistance (legitimately)

and resume the long-term uptrend.

Measuring Technique to Set Target Levels

Traders can look to the starting point of the descending wedge

pattern and measure the vertical distance between support and

resistance. Then, superimpose that same distance ahead of the

current price but only once there has been a breakout. The top

end of the line will be the target.

2) Falling Wedge Reversal Pattern

Traders can make use of falling wedge technical analysis to

spot reversals in the market. The USD/CHF chart below

presents such a case, with the market continuing its downward

trajectory by making new lows. Price action then start to trade

sideways in more of a consolidation pattern before reversing

sharply higher.

Traders can use trendline analysis to connect the lower highs

and lower lows to make the pattern easier to spot. A break and

close above the resistance trendline would signal the entry into

the market. A stop loss can be placed below the recent swing

low, while the target can be placed according to the

measurement technique discussed above; or at a previous level

of resistance - while adhering to positive risk to reward ratio.

Confirmation: Traders can look to the volume indicator to see

higher volume (greater conviction) in the move up. Additionally,

divergence can be observed as the market is making lower

lows but the stochastic indicator is making higher lows – this

indicates a potential reversal.

Key points to remember:

 Identification of the trend is crucial

 Both continuation and reversal scenarios are inherently bullish

  Both patterns present favourable risk to reward ratios as they

generally precede big moves

ADVANTAGES AND LIMITATIONS OF THE FALLING

WEDGE

ADVANTAGES DISADVANTAGES

Occurs frequently within financial markets Can be ambiguous to novice traders

The falling wedge pattern allows traders to Requires additional confirmation usin

get into a trending market after missing other technical indicators and

the initial move (continuation case) oscillators

Presents clear stop, entry and limit levels Often identified incorrectly

Opportunity for favourable risk-reward The falling wedge can signify a rever

ratios or continuation pattern (essential to

identify this correctly)

 Making the Most Out of

the Wedge Pattern

Formation

Rising and falling wedges are chart pattern formations mostly employed by day

traders for their potential in predicting the upcoming price actions. It wouldn’t be

precise to group wedges into one category; Wedges can either be reversal or
continuation pattern. And just as the name suggests, the ever wavering graph gives

rise to a formation much similar to that of a wedge.

Rising Wedge: Formation

A rising wedge is formed when the sloping support line goes steeper than the

resistance line. The support line is the slope or plane below which the price actions

struggle to stoop, and the line above which the price action struggles to break

through is the resistance line. The distance between lines decrease gradually and

when the lines come close to each other, the chart will be inflicted by a redirection.

Reversal or Continuation

The factor which decides the formation’s character is not how long it takes to

complete the formation, rather the emphasis is on when the pattern is formed. If the
rising wedge is formed in the uptrend, then it is most likely a reversal; and in the

downtrend, the wedge is most likely to go as a continuation.

Price Target:

The right position to take the trade is when the prices fall below the support line. It

signifies that more traders are willing to go short than the ones willing to go long.

The safest position to exit with substantial profits is by the difference between the

resistance and support at the start of the wedge. The measured height is used from

the entry point to determine the exit point in the downtrend.

The stop loss is placed at the recent high within the wedge, just to be safe in case of

a misinterpretation.

Falling Wedge: Formation

Falling wedge is much similar to the rising wedge. The resistance line progressively

narrows down to the support line and establishes a wedge-shaped pattern. The

distance between the lines gradually comes down and after the narrowed part is

when the surge is likely to occur.

Reversal or Continuation

The falling wedge can be a continuation or reversal, just like its bearish counterpart.

The falling wedge occurring at the downtrend is mostly suspected to be a reversal

pattern. On the other hand, the wedge falling at the uptrend is most likely to be a

continuation.

Price Target:

The right position to take the trade is when the prices rise above the resistance line.

It signifies that more traders are willing to go long, rather than short.
The safest position to exit with substantial profits is the difference between the

resistance and support at the start of the wedge. When the price thrusts above the

resistance line, the exit can be marked at the approximate height of the wedge.

The stop loss is placed at the recent low formed within the wedge, to limit the losses

in case of a misinterpretation.

Bottom Line:

Identifying and trading chart patterns are one of the peerless ways to make quick

profits, but rudiments astuteness to banish misinterpretations and miscalculations.

The catch in trading wedges is that once the formation is complete, taking the trade

can be profitable irrespective of the reversal and continuation.

What Is A Wedge Pattern?

How To Use The Wedge Pattern
Effectively
What is the Wedge pattern?
Characteristics and how to identify
Wedge is a popular chart pattern in Forex trading. This is a form of

recovery or accumulation of price after a strong trend. Morphologically,

the Wedge pattern is a narrowing price channel with the two support and

resistance levels converging to one point to the right. This pattern ends

when the price breaks out of the resistance or support and creates a new

trend.
Types of Wedge patterns

There are 2 types of Wedge patterns: Rising Wedge and Falling Wedge.

Rising Wedge patterns

The rising wedge pattern is a narrowing price channel with the 2

resistance and support levels pointing up the right corner. After creating a

rising wedge, the price will usually break out of the support to enter a

downtrend.

The pattern often appears in a downtrend as a form of accumulation. After

that, the price breaks out of the support and continues to decline.
An example of the rising wedge pattern appearing in a downtrend

It can also appear at the top of an uptrend and signal a trend reversal from

bullish to bearish.
The rising wedge example in an uptrend

Falling Wedge patterns

This is a narrowing price channel with the two support and resistance levels

pointing down. After creating a falling wedge, the price will usually break out

of the resistance and create an uptrend.

Falling Wedge patterns

Unlike Rising Wedge, Falling Wedge usually appears during an uptrend and is

a signal for a new bull run in price.

An example of the falling wedge pattern appearing in an uptrend

Or it can also be at the bottom of a downtrend, signalling a bearish to bullish

reversal.
The falling wedge example in a downtrend

Characteristics of the Wedge pattern

+ When the breakout is in the opposite direction of the wedge, it will be more

accurate.

+ The steeper the wedge is, the more accurate the signal gives.

How to trade Forex and binary options

with the Wedge pattern

Trade Forex
I will show you how to open a Forex order in the most detailed and effective

way using the Wedge pattern. Watch it carefully as I will illustrate the best

entry point, stop-loss, and take-profit with this pattern.

The general rule for trading using this pattern is to wait for the breakout or

retest of the price and then open the order.

+ With a Rising Wedge, we will open a DOWN order when the price breaks

out of the support and goes down.

+ With a Falling Wedge, we will open an UP order when the price breaks out

of the resistance and goes up.

Please go through the following images to better understand.

For the Rising Wedge

There are two cases where you can open a DOWN order with a rising wedge.

The first one is when it comes after an uptrend and the price breaks out and

then goes down.

+ Entry Point: Right after the candlestick breaks out of the support.

+ Stop-Loss: At the highest resistance level of the Wedge pattern.

+ Take-Profit: From the entry point, the distance is equal to the maximum

width of the rising wedge pattern.

How to trade Forex with a Rising Wedge

The second case is when a rising wedge appears in a downtrend signaling a

continuation of the trend. You can also open a DOWN order when the price

breaks out and goes down. Take-profit and stop-loss points are similar to the

first case.
How to trade Forex with a Rising Wedge

For Falling Wedge

You can only open UP orders in the following 2 cases with a falling wedge.

In the first case, the price is in an uptrend. The falling wedge pattern appears

as an accumulation period for a new increase.

+ Entry Point: Right after the candlestick breaks out of the resistance.

+ Stop-Loss: At the lowest support level of the Falling Wedge pattern.

+ Take-Profit: From the entry point, the distance is equal to the maximum

width of the pattern.

How to trade Forex with a Falling Wedge

In the second case, the price is in a downtrend. A falling wedge pattern

appears. This is a signal that the price will reverse from bearish to bullish.

Open an order when the breakout occurs. Take-profit and stop-loss points are

set similarly to the first case.

How to trade Forex with a Falling Wedge

Trade binary options with a Wedge pattern

For binary options trading, the perfect entry point using this pattern is the

retest point of the price after a breakout. You can use a 5-minute or 10-

minute Japanese candlestick chart to search for wedge patterns.

Requirements: A long expiration time (If you use the 5-minute Japanese

candlestick chart to analyze the market, the expiration time for a binary

options order should be between 30 and 45 minutes.)

How to open an order

+ Open an UP order when the price retests the resistance of the Falling

Wedge pattern.
Trade binary options with a Falling Wedge

+ Open a DOWN order when the price retests the support of the Rising

Wedge pattern.
Trade binary options with a Rising Wedg

The Rising Wedge

The rising wedge is a bearish stock pattern that begins wide at the
bottom and contracts as prices move higher and the trading range
narrows.

This pattern can also fit into the continuation category. As a continuation

pattern, the rising-wedge will still slope up, but the slope will be against
the prevailing downtrend. As a reversal pattern, the rising wedge will

slope up and with the prevailing trend.

Regardless of the type (reversal or continuation), rising-wedges are

bearish.
 Chart by MetaStock

For further in-depth information on stock market charts and stock chart

patterns, check out this resource, which contains critical information to

help you learn to use stock charts and technical indicators in a clear,

simple and concise manner to improve your stock trading entries and

exits.

The following are key points in confirming the rising-wedge

pattern:

 Prior Trend: In order to qualify as a reversal pattern, there must be a

prior trend to reverse. The rising-wedge usually forms over a 3-6

month period and can mark an intermediate or long-term trend

reversal.

Sometimes the current trend is totally contained within the rising-

wedge; other times the pattern will form after an extended advance.

 Upper Resistance Line: It takes at least two reaction highs to form

the upper resistance line, ideally three. Each reaction high should be

higher than the previous high.

 Lower Support Line: At least two reaction lows are required to form

the lower support line. Each reaction low should be higher than the

previous low.
 Contraction: The upper resistance line and lower support line

converge as the pattern matures. The advances from the reaction

lows (lower support line) become shorter and shorter, which makes

the rallies unconvincing.

This creates an upper resistance line that fails to keep pace with the

slope of the lower support line and indicates a supply overhang as

prices increase.

 Support Break: Bearish confirmation of the pattern does not come

until the support line is broken with higher volume.

The OBV Indicator can be used to confirm the break.

Ascending Broadening Wedge

The Ascending Broadening Wedge is a reasonably common chart pattern

that many traders enjoy trading. Contrary to the Rising Wedge, in which

price action contracts as the pattern matures, the Ascending Broadening

Wedge widens as the two trend lines that have formed diverge from one

another.
The ascending broadening wedge is a reversal pattern and is bearish in

nature. Often a “peaking” move accompanied by bearish divergences in

indicators like RSI and MACD. Though the pattern is typically a reversal

signal, the uptrend’s continuation is still possible.

When present as a continuation pattern, the wedge will still slope to the

upside. However, you will typically find the up-slope as a pullback within a

downtrend. When present as a reversal, the pattern will slope to the

upside within an uptrend. Regardless of continuation or reversal,

ascending broadening wedges are always bearish once the uptrend

breaks.

What to Look For In An Ascending Broadening

Wedge

Trend Established: As with any reversal, there needs to be an

established trend to reverse. The ascending broadening wedge can form

on any time frame and mark the reversal of a short, intermediate, or long-
term trend. The odds of a breakdown are at 73%, leaving only 27% odds

of a break to the upside. At times the overall trend may be completely

within the pattern, while at other times, the pattern forms after an

extended advance.

Resistance Line: At least two highs are required to draw the upper

resistance trend line. For the ascending broadening wedge to be a valid

pattern, price action should be creating higher highs.

Support Line: At least two lows are required to draw the lower support

trend line. Price action should be creating higher lows for the pattern to be

valid.

Price Action Expansion: The distance between the resistance and

support lines will expand or widen as the pattern matures.

Break in Support Line: Confirmation of the bearish move is when the

support line breaks and the candle for the current time frame has closed

below the pattern. Once this support breaks, there may be a reaction rally

to retest the newfound resistance level (broken support line), as shown

below on AVXL 30 min chart.

 Falling Wedge Chart Pattern

Falling wedge chart pattern is just opposite to rising wedge chart pattern but it is
also a reversal or continuation chart pattern.
So, we are going to tell you about this one in this class where there are two
types of wedge chart pattern. This class is about falling wedge chart pattern. So
if you want to make money with this chart pattern, you should keep attention to
this class!

However, there is no chance to be missed any easy description to make you

understand if you don't miss it yourself !!!

When price makes consolidate between resistance and support by downward

slope, a rising wedge pattern is formed. You have to notice well that the upper
line(resistance) will be more downward than the down line(support). It is
usually a bearish chart pattern which may give a strong down trend with the
same height of the pattern or it may goes down more.
We again repeat these sentence for their high importance!
We always say that the more important is identify a chart pattern instead of
trading it. Because, wrong identification may lead you to loss.

So listen our lecture very carefully at our each class!

Notice the image above. It shows that the falling wedge acted as a reversal
chart pattern here. But this is not the last ! We have more example for you!
We will now show you a continuation chart pattern. Enjoy this well ! See below
for knowing what happened later.
A falling wedge chart pattern is a bullish chart pattern. If you found it in a down

trend, you may expect for a reversal. On the other hand, if you found it in a up

trend, You may expect for continuation the trend.

However, don't make your expectation very high! For this reason, try to follow

your risk management rules strictly.

EXAMPLES
 Axis bank is likely to see high volatility from Friday because of the stake sale

by the government. Stock is showing a Bullish Falling wedge reversal pattern.

 Price continues to move with reducing volume. Price and volume breakout

may give an extended move for the stock.

Head and shoulders

The first price action reversal pattern we're going to look at

is the head and shoulders pattern. Without doubt one of

the most popular and well known price action patterns in

the market, the head and shoulders formation is one which

all price action traders need to memorize and understand if

they want to become good at spotting reversals using price

action. As you've probably already guessed, the head and

shoulders pattern is a reversal pattern which has a swing

structure very similar to that of person's head and

shoulders.
Here's an image of a bearish head and shoulders pattern which
formed on the 1hour chart of EUR/USD.

You can see from the image the structure of the pattern does bear a striking

resemblance to somebody standing up with their head straight and their shoulders

level with one another. Most head and shoulders patterns are supposed to look like

the one you can see in the image above, but a large percentage of them will actually

have features which are a little different from one another. For example, you might

see a pattern form with one of the shoulders being a little bit higher than the other, or

the distance of two shoulders from the head will be smaller or bigger than what you

can see in the pattern above.

These small differences do not alter the pattern in any meaningful way. So long as

the head is always found in the middle and the two shoulders are found to be either

side, it's a head and shoulder pattern. If the high of the right shoulder is found to be

below the swing low of the move up which created the head, then it's
not a head and shoulders pattern and should not be treated as such.

The pattern itself comes in two variations. The one we just looked at in the image

above is referred to as being a bearish head and shoulders pattern, which is a signal

the market may reverse to the downside, whilst the one seen in the image below is a

bullish head and shoulders pattern, but is often referred to as being an inverse head

and shoulders pattern due to the way the pattern is basically an upside down version

of the bearish pattern.

Here's what an inverted head and shoulders pattern looks like on a

chart.

You can see that all the features of the pattern are the same as the
bearish version, only the opposite way around. Instead of the head
pointing upwards like it does with the bearish pattern it points down,
as do the left and right shoulders. The only real difference between
the two patterns is in what needs to happen in order for the pattern
to become invalidated.

With the bullish head and shoulders pattern if the right shoulder
forms below the swing low of the move up which created the head,
the pattern is not a head and shoulders and is instead some other
formation. The bearish head and shoulders follows the same rule,
only the right shoulder cannot form above the swing high of the
move down which created the head, if it does it's not a bearish head
and shoulders pattern.

All in all the head and shoulders formation is usually quite a reliable
signal the current movement is going to reverse. If you want to learn
the best way to trade the head and shoulders pattern and get a
more in-depth look at the way it should form on your charts, check
out the article I've left below.
Head and shoulders is a chat pattern in which a large peak has a slightly

smaller peak on either side of it. Traders look at head and shoulders

patterns to predict a bullish-to-bearish reversal.

Typically, the first and third peak will be smaller than the second, but they will all fall

back to the same level of support, otherwise known as the ‘neckline’. Once the third

peak has fallen back to the level of support, it is likely that it will breakout into a

bearish downtrend.
MACD Stock Chart Indicator

MACD or Moving Average Convergence Divergence is a great way to assess a stock

price direction.

What is MACD?

Gerald Appel developed MACD to easily show the Moving Averages of a stock in a

way that could show the strength of the difference of the Moving Averages. For
example, if the 10 & 20 day moving averages for a stock move away from each other

as the stock is going up, this means the stock is gaining strength.

MACD Usage

Short = the shorter Moving Average, e.g., 10

Long = the longer moving average, e.g., 20 or 30

Period = the Moving average of the difference of the Short and Long above.

Use short MACD configuration for shorter-term trading 5-35-5, or longer

configurations for longer-term trading 12-26-9 is popular, also 10-30-5.

Experiment and also view charts on different timeframes to test if the indicator is true

from different angles.

This could go on and on; however, I will suggest now we move to the more practical

use of MACD viewing it in real life on a real stock.

Please be aware that sometimes MACD does not tell you anything about a stock, but

it does in many cases. As always, if the indicators tell you nothing, there is probably

nothing to be told; move on and look for other stocks.

How to Use MACD

Take a look at the Netflix (NFLX) Learning Chart below.

Here we have a MACD configured of 10, 30, 5 Simple, and this is a 2 Day (per bar)

Chart.

Step 1 – Price Growing

The stock price is in growth mode, almost doubling in the first quarter.

Step 2 – Negative Divergence

The trick with MACD is to look at the trend; it is a powerful indicator when comparing

the direction of the MACD Mountains with the Price Movement.

Point 2 illustrates that although the price doubled in 2008, we saw the MACD make

lower lows “negative divergence.”

We see a change in the MACD from positive to negative, and the large mountain

(below the Zero Line) forms. MACD is an oscillating indicator and, as such, is always

tied to the Zero line in the middle.

Step 3 – Price declining

Here we see a strong decline in price for the rest of 2008 until November. Using a

trendline to show this helps us visualize the direction easier

Step 4 – Positive Divergence

Simultaneously, the price is declining; we actually see a longer-term Positive

Divergence occurring from June to December. This essentially means that the “Gas

in the tank of the sellers is slowly reducing.”

However, we should not have waited until December to buy the stock. That would

have been way too late. Instead, we would look to Point 5.

Step 5 – Buy Signal

MACD broke through the resistance line: here, we see the MACD breaking strongly

past its previous high. I plotted a trendline in orange to show this clearly.

If you had used MACD as your BUY SIGNAL, you would have netted 56% in 4

months.

Please do not think I searched through hundreds of charts to find a good example to

demonstrate here. I did not; this was a stock in my watch list and indeed bought

based on this lesson. As you can see, the dates are up to the end of January 2009 in

this historical example.

Ascending triangles are classified as continuation Patterns. Here are

the key elements that make up an ascending triangle:

1. Bottom Trend Line (Support)– An ascending triangle is characterized by

a bottom trend line that is formed as the price continues to set higher lows.

The more touch points on the trend line , the more reliable it will be.

2. Horizontal Resistance Line – An ascending triangle also contains a flat

horizontal resistance line that is formed as the stock continues to reject its

previous highs (for a given period). Once again, the more touch points on the

resistance line, the more reliable the pattern will be.

You must be wondering how the chart pattern get to be formed?

What happens during the formation of an ascending triangle is that there is a

certain level that the buyers cannot seem to break (red resistance line).

However, as evidenced by the higher lows (green uptrend support line),

buyers will gradually push the price up, hence we end up with an uptrend of

higher lows.

As buyers and sellers keep putting pressure, a breakout will become

inevitable.

Though a price breakout is inevitable, the big question is, “Who will break

the price, buyers or sellers? Will the buyers be able to break

that resistance level , or will the resistance be too strong?”

Well, the answer is, most of the times the price will break the resistance

area and go up.

However, it is not always the case, sometimes, the resistance is too strong

for buyers to break.

Now let’s look at its inverse, the DESCENDING TRIANGLE CHAT PATTERN

In a descending triangle chart pattern, as can be seen on the BTCUSD chart

above, there is a string of lower highs which forms the upper line (red

resistance line). The lower line is a support area (green horizontal line) in

which the price seems to be failing to break.

Just as with ascending triangles, most of the times, the price will break the

horizontal support line, and continue with the move lower.

Follow me closely as we will now ‘investigate’ the PSYCHOLOGY behind

ascending triangles:

To make the analysis easier, let’s think of the ascending triangle pattern as a

visualization of an ongoing battle between the bulls (buyers) and the bears

(sellers).

The bulls keep pushing the stock up in price until they get overpowered by

the bears/sellers at the horizontal resistance level .

It is at that resistance level that bears/sellers attempt to push the price down.

Though sellers are somehow successful in pushing the price down, they are

however unable to push the price to the previous low levels, as bulls/buyers
are persistent, and the price sets a higher low (bottom trend line ).

This pattern continues until the price action becomes confined to

the vertex of the triangle, representing a pivotal moment in this battle. At

this point, either the bears will win, and the BTC will break the bottom trend

line , or the bulls will win and break the horizontal resistance line.

If history is anything to go by, this pattern favors the bulls, and if the

horizontal resistance line is broken, the bulls will be able to push the price up,

triggering a breakout.
CHANNEL PATTERN :- It is nothing but a formation of two almost parallel lines

between which the stock oscillates.

Channel can be of 3 types : 1) Horizontal Channel 2) Rising Channel 3) Falling

Channel

It is a constant fight between bears and the bulls and victory is decided by the

breakout or breakdown of the channel pattern.

Bulls wins the fight if breakout occurs , bears wins the fight if breakdown occurs.

When fight is over, the stop loss of other team is hit hence we can see a very strong

move after the breakout or a breakdown.

I have explained everything on the chart itself but here is one tricky point which i

would like to again repeat. :-

When a stock fails to touch the either of the line , there is a possible chance of
breakout on the opposite side. ( as clearly seen in the chart breakout took place on

above side when stock didn't touched the support line )

In above scenario bulls were more strong as they didn't let the stock move towards

the support line, bears lose hope and finally breakout took place.

Another secret point i would like to share with you all :-

When stock gives a fakeout (breakout + moving back into the channel ) there is a

possible chance of breakdown on the opposite side.

and When stock gives a fakedown (breakdown + moving back into the channel )

there is a possible chance of breakout on the opposite side.

Bullish RSI Divergence -A case study and future

recommendation
 Dan's 10 Golden Rules
1. Make sure the stock has a well formed base or pattern such as

one described on this web site and can be found on the tab

"Understanding Chart Patterns" on the home page, before

considering purchase. Dan highlights stocks with these patterns

in his newsletter.

2. Buy the stock as it moves over the trend line of that base or

pattern and make sure that volume is above recent trend

shortly after this "breakout" occurs. Never pay up by more than

 5% above the trend line. You should also get to know your

stock's thirty day moving average volume, which you can find

on most stock quote pages such as eSignal's quote page.

3. Be very quick to sell your stock should it return back under the

TBA or breakout point by $3 to $5. The more expensive the

stock, the more leeway you can give it. Some people employ a

5%-7% stop loss rule. This may mean selling a stock that just

tried to breakout and fails in 20 minutes or 3 hours from the

time it just broke out above your purchase price.

4. Sell 20 to 30% of your position as the stock moves up 15 to

20% from its breakout point.

5. Hold your strongest stocks the longest and sell stocks that stop

moving up or are acting sluggish quickly. Remember stocks are

only good when they are moving up.

6. Identify and follow strong groups of stocks and try to keep your

selections in these groups.

7. After the market has moved for a substantial period of time,

your stocks will become vulnerable to a sell off, which can

happen so fast and hard you won't believe it. Learn to set new

higher trend lines and learn reversal patterns to help your exit
 of stocks. Some of you may benefit from reading a book on

Candlesticks or reading Encyclopedia of Chart Patterns, by

Bulkowski. These books can be found on our RECOMMENDED

READING page on the website.

8. Remember it takes volume to move stocks, so start getting to

know your stock's volume behavior and then how it reacts to

spikes in volume. You can see these spikes on any chart.

Volume is the key to your stock's movement and success or

failure.

9. Many stocks are mentioned in the newsletter with buy points.

However just because it's mentioned with a buy point does not

mean it's an outright buy when a buy point is touched. One

must first see the action in the stock and combine it with its

volume for the day at the time that buy point is hit and take

keen notice of the overall market environment before

considering purchases.

10. Never go on margin until you have mastered the market,

charts and your emotions. Margin can wipe you out.

 Dan's Trading Tips
Note: If you are new to trading or investing, I suggest reading

these rules many times over until they become ingrained so

you can act without emotions.

Stocks that breakout and move up with tremendous volume

and close near the highs of the day seem to work out best.

However many stocks that move up 15% or more on breakout

day often fail. You'll just have to watch your stock's action like a

hawk and get to see and understand these things over a long

period of time. If trading were easy everyone would be making

millions. It's not; it takes years and years of hard work and long

hours.

Many traders employ a 30-minute rule, meaning that for the

first half hour of the day many traders do not buy any stock

that gaps up in price. If the price holds after the first half hour

then often many traders will step in a buy the stock. I find this

rule works good after the market has moved up for few strong

weeks and is not very effective at the start of a new strong

move.
If its earnings season, then it's an absolute must that you know

the date your company reports its earnings. Many traders

prefer to be out of a stock 100% the day before a company

reports earnings in case the company misses earnings or

guides lower in which case the stock could plunge. Others

reduce positions substantially the day before earnings are

released to lower risk as a massive gap lower could be very

destructive to your portfolio. The choice is up to you. If you

have a nice 50% gain or more, you might consider reducing

50% or so of your position and holding the rest over earnings

and you could hedge that position with some puts. You can see

an earnings calendar on this web site by clicking on the Useful

Stock Resources link here. Please verify this information by

calling the company or visiting the company's website which

you should be able to find in any search engine.

*The market moves in waves that can last anywhere from

weeks to months. Then a correction or setback starts, which

can last anywhere from 5 to 8 weeks or even as long at 4 to 6

months. If you are starting a free trial and are a novice you may

be lucky to join just as the market gets underway, in which

case you will see the full power of charting. If however you start
after the move has been going for sometime then things won't

look as good as traders are paring down positions. Or even

worse the market could be selling down hard and working off

the prior up move in which case you will be completely

discouraged. The power of charts is through waiting for the

correction to end whereby the chart patterns will then be fully

developed. After weeks of base or pattern building, stocks will

begin to lift off and that's when the big rewards come in. The

question is, are you willing to wait and be here for the start of

the next big move? The biggest mistake a novice can make is

to come back after a move has started.

*Please read a few times my interviews in Stocks and

Commodities and Traders' Magazine at the top of the home

page of this web site. There are many tips and how - to's that

will greatly improve your ability to understand how this works.

More good comments can be found in the FAQ section of this

web site in the member login area.

I give setups of stocks that are ready to potentially move.

That's my job. Your job is to get to know the stock and its

movement along with the general market each day. You are the

only one that can do this in realtime during market hours. Then
if a stock acts well (i.e. volume is very heavy and the stock is

moving easily out of the base) then that is the one to buy. I do

not buy most stocks that breakout as most do not meet my

heavy volume/price action behavior during the day. Also, I buy

only the most expensive stocks as the percent loss is least if

the stock pattern fails. High priced stocks are the best quality

stocks as a general rule in playing the market. Remember to

buy as close to the trendline as possible and the volume should

come in at least 10 to 20 minutes after you buy (or even

earlier) and if not by then, you know no one wants the stock

and might as well check out early.

Thanks, Dan