What is a triangle pattern? Trade effectively with the triangle model

What is a triangle pattern?

The triangle model is a common tool in Technical analysis, which appears when the price moves in a narrow range, forming peaks and bottoms that gradually converge together.

This model is used to predict price movements in financial markets, which usually appear during the accumulation or correction period, signaling the waiting sentiment of the market before a breakout occurs.

Meaning of triangle model

The triangle pattern carries important significance in determining price trends and breakpoints in the market.

When formed, the triangle pattern represents a temporary balance between buying and selling forces with the market having no clear direction of movement. However, when the price “breaks” the edges of the triangle, it signals the continuation of the old trend or a potential reversal.

Thanks to this, the triangle model helps investors identify the right time to enter an order, minimize risks and optimize profits.

How to recognize and draw a triangle pattern

Triangle patterns usually appear at the end of an upward or downward trend, marking the period of correction after sharp fluctuations.

To recognize the triangle pattern, you need to pay attention to the fact that the price does not continue to create new peaks (or bottoms) and moves slowly, and the volume begins to weaken. The chart will show peaks and bottoms gradually converging, forming triangles, indicating the market's wait before a breakout.

How to draw a triangle pattern:

• Identify peaks and bottoms (at least 2 peaks and 2 bottoms).
• Connect the tops and bottoms together. The rear peak is lower than or equal to the previous peak, and the back bottom is higher than or equal to the front bottom, in order to create a slope for the price to converge.
• The most important thing is that the price needs to converge before breaking the pattern.

Common triangle patterns in trading

In technical analysis, triangular patterns often appear and play an important role in determining price trends.

Based on the resistance and support lines, we can identify three common triangle models which are the ascending triangle, the decreasing triangle, and the equilibrium triangle.

Ascending Triangle Model

Characteristics:

• The resistance line is horizontal, indicating that the price is limited by a certain level that the buyers have not yet been able to break.
• The support line goes up, indicating the gradual dominance of the buyers with the price bottoms getting higher.

Meaning:

• This is an uptrend pattern, reflecting the dominance of the buying side. When the price breaks the resistance line, the market usually enters a period of sharp rise.
• The tightening in the pattern suggests that the buying side gradually pushes back the sell side, preparing for a breakout.

Descending Triangle

Characteristics:

• The support line is horizontal, indicating the price that the sellers are trying to break.
• The resistance line slopes downwards, indicating increasing selling pressure as price peaks get lower.

Meaning:

• This is a downtrend pattern, reflecting the dominance of the sell side. When the price breaks the support line, the market usually continues to fall sharply.
• The struggle shows that the selling side is overwhelming, pushing prices lower while the buying side gradually weakens.

Symmetrical Triangle

Characteristics:

• The two borderlines converge at one point, with the support line going up and the resistance line going down.
• Neither the buying side nor the selling side has yet to prevail markedly, resulting in a temporary balance.

Meaning:

• This is a neutral pattern, signaling the market is in a cumulative state. When the price breaks one of the two boundaries, a new trend will be established.
• The fierce struggle between the two sides manifests itself in the fact that the price fluctuates in an increasingly narrow range before one side wins.

3 steps of trading with triangle pattern

Trading with a triangle pattern requires patience that helps identify effective opportunities. The following are three detailed trading steps with the triangle pattern:

Step 1: Identify the trend

It is necessary to determine the trend before the triangle pattern forms. Triangular patterns usually appear after a sharp upward or downward trend, signaling a period of accumulation or preparation for a breakout.

Step 2: Draw the triangle pattern

• Use trend lines to connect price peaks and bottoms, forming a triangle pattern.
• Make sure the border should touch at least 4 points (2 vertices and 2 bottoms). This is a sign that the model is clearly formed and reliable.

Step 3: Determine the entry point, stop loss and take profit

Rising triangle pattern (Buy order preference)

• Order Entry Point: Buy as soon as the price breaks the resistance line or wait for the price to retest the broken resistance line.
• Stop Loss: Set at the closest bottom of the pattern.
• Profit taking point: How the point breaks an interval equal to the height of the triangle.

Descending triangle pattern (Sell order preference)

• Order entry point: Buy as soon as the price breaks through the support line or wait for the price to retest the support line that has broken through.
• Stop Loss: Set on the nearest peak of the pattern.
• Profit taking point: How the point breaks an interval equal to the height of the triangle.

Weighted triangle pattern (break which edge, enter the command by which edge)

• Entry Point: Trade only after the price breaks one of the two sides of the triangle (resistance or support).
• Stop Loss: Set outside the border opposite the break direction.
• Profit taking point: Based on the height of the triangle from the break point.

Example of entering a command with a triangle model

The following is a specific example of how to place a BTC/USDT trade order when a triangle pattern appears on the chart.

Observed on the graph, this is the equilateral triangle pattern.

• Place a Buy order at the price of 60,655 USDT, as soon as the candle breaks the triangle pattern. In this case, the price retest twice and then pops up again.
• Set Stop Loss at the nearest bottom, at 52,479 USDT.
• Set Take Profit equal to the height of the triangle, at a price of 83.256 USDT.

Note when trading on a triangle pattern

When trading in a triangle pattern, there are a number of important considerations to increase the chances of success and minimize risk:

• Wait for the obvious break: Avoid entering orders too early while the pattern is still forming. Triangle patterns can last from several days to weeks, so entering orders before a breakout can lead to risks. Trade only when the price clearly breaks one of the edges of the triangle.
• Trading volume:The break should be accompanied by an increase in trading volume to confirm the validity of the breakout. The volume weakens during the formation of the model, but when the price breaks, the volume must rise sharply to ensure authenticity.
• Selection of the type of triangle model: With an ascending (falling) triangle pattern, the price usually signals the continuation of an upward (downward) trend. But for the equilateral triangle pattern, it can lead to a reversal or continuation of the trend, so care should be taken in predicting the direction.
• Forming Time: Triangle models can last from several days to several weeks, with greater reliability when forming longer. Long periods of time help the market accumulate enough information and create a powerful breakout at the break. If the pattern forms quickly, the ability to break may be weak or skewed.
• Timeframe:Triangular models on long time frames (such as days or weeks) are usually more reliable than short timeframes.
• In combination with other tools:Combine the triangle pattern with other technical indicators such as RSI, MACD, or candlestick patterns to confirm the trading signal.

Through this article, we can see that the triangle pattern is a powerful tool in technical analysis, helping to identify price trends and breakpoints in the market.

However, to achieve high efficiency, investors need to combine the triangle model with other instruments and indicators, in order to make correct investment decisions and minimize risks in the context of volatile markets.