Two converging trendlines create triangle. Symmetrical triangle as forex pattern, traps price between its boundaries. Even through it is considered to be mainly a continuation formation, breakouts to both direction are almost equally likely. Triangle is one of those patterns, that doesn't give you much information on the market, but its great opportunity to regroup and prepare for next price move up or down. It is rare to find perfect symmetrical triangle in forex market, asymmetrical triangles (descending triangle and ascending triangle) are more common.
Trading triangles forex pattern
Breakout usually occurs at the very end of formation, also known as apex.
Breakout to the direction of previous trend is slightly more likely. However, it is much better not to anticipate any direction, but simply react to any movement that occurs. We do so by placing pending orders (or awaiting manual entry) at both ends of price congestion at the triangle apex.
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Placing orders at correct price is crucial, triangle as any other formation in forex can experience fakeouts. Fakeouts can be avoided by considering volume and breakout candle shape.
Considering the presence fakouts, some professional traders prefer to enter the breakout in the direction of the trend only after pullback formation completion. With this method we expect price to successfully test previously broken support/resistance. We consider the pullback to be confirmation of a breakout.
Profit target: Width of the triangle at its base (in pips) is conservatively used for take profit.
Stop loss: In volatile market we place stop loss at the most distant swing in triangle formation. If we enter the position long, we place stop loss at lowest low of formation.
In quiet market stop loss can be placed at most recent swing up (sell order) or down (buy order).
Conclusion: Forex triangles are relatively rare pattern, that can teach one very important lesson. Do not try to predict the future of price development. Sometimes it is better just to be prepared to react.