Understanding Price Chart Triangle Patterns

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Introduction

Trading is all about exchange of money. Traders move lots of cash using their online trading accounts in response to the market temperature. In Forex trading, for instance if a trader suspects that a currency pair will move up, they will buy the concerned pair. On the other hand if they strongly feel that the pair will dip, they will sell to avoid getting into losses or maximize on favorable prices before they plunge. These actions of traders in the Forex market create what we call price patterns on the trading chart.

Price patterns therefore refer to chart movements that mirror the actions of and feelings of the Forex market traders. A trader with a good grasp of the patterns trades at a leveraged position compared to the rest in the league. Price patterns give one the ability to clearly identify entry points and to project the far a currency pair can go after breaking out and starting to move.

Price patterns are normally categorized into two:

 

Continuation patterns-these are price patterns that inform the trader about the progression of a trend. They give an insight to the trader concerning when to enter the market and when to pick up his profit and exit a trade.

 

Reversal patterns- these attempt to answer the question: will this trend continue? These patterns help to warn the trader of impending price reversals and likely movement in the opposite direction for the trader to take the necessary measures.

Triangle price continuation pattern

This is a continuation price pattern. A triangle price continuation pattern occurs when a currency pair attains the flat level of support or resistance and then moves towards a tighter consolidation range. Triangles can assume bearish or bullish status depending on the prevailing condition in the market before the formation of the triangles. If the prior conditions amounted to an upward trend, then the triangles are bullish. On the other hand, if the market was on a downtrend then the triangle will be a bearish continuation pattern.

Triangle chart patterns have characteristics worthy discussing. These characteristic are:

Resistance level

In a bullish continuation (ascending triangle) pattern the resistance level is horizontal or flat. On a downward or bearish trend, the resistance level is converging on the support level (descending triangle).

Support level

A horizontal level of support signals a bearish market represented by a descending triangle. The support level is up-trending and converging with the resistance level in an exuberant or bullish market.

Flag pole

As discussed earlier, the pattern prior to the triangle formation is key. In a bullish market, the flag pole covers the distance between the beginnings of the pattern to the highest peak of the ascending triangle.

In a bearish market on the other hand, the flagpole measures the distance from the onset of the trend to the lowest point of the descending triangle.

Breakout point

The price movement of currency pair differs as it is significantly influenced by the mood of the market. Break out refers to the point at which the currency pair breaks above the horizontal level of resistance in a bullish market characterized by an ascending triangle. In a bearish or descending triangle, the currency pair breaks down below the horizontal level of support.

Price projection

After the currency pair breaks out, there is a price to which it ends up assuming. Price projection in a bearish market refers to the price at which the currency pair will most probably dip to after breaking out. In the event of a bullish market, price projection will indicate to how far the price will rise after breaking out of the triangle. In either case, the distance the currency pair is estimated to move will be equal to the height of the flag pole.

In a nutshell, triangle price chart patterns generally aid the trader to know whether a currency pair will continue with a particular trend in the market or not. If the answer is yes, triangle price chart patterns help the trader to analyze the duration of continuity. This is of great importance to a trader so that he can act accordingly to avoid making losses while at the same time working to maximize his returns.