Triangle is one of those formations that is rare enough, to be entered with higher leverage and higher caution. When done correctly it is extremely accurate forex pattern that can be found scarcely around all timeframes and currency pairs.
Solid triangle pattern is hard to find. Even more so, considering that is necessary to pick only the best triangles for our entry.
This forex strategy offers complete solution of triangle pattern trading that will enable you enter with confidence and confirm signal once more after the breakout to increase the leverage of your entry for maximum results.
Forex strategy rules
Learn to properly identify a triangle pattern in your chosen timeframe. To speed up the learning curve you can begin in 5 min timeframe, where you can find forex patterns most frequently. If you struggle to draw a triangle properly, you can use zig zag indicator or fractals to recognize wave structure (swings) creating triangle pattern.
As with all supports and resistances in forex, they are zones not line. It is absolutely necessary to draw them as such. Yo do so by drawing support on price candles low but also on bearish candle close and bullish candle open.
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Resistance is drawn by connecting highs of the price swings, but also a bullish candle close and bearish candle open on swing high.
By doing so, you will avoid situations where you mistake candle closing in the zone (S/R) for a valid breakout (candle closing outside of the S/R zone).
This single step will save you a lot of headache.
Once you have your triangle drawn (symmetrical triangle) you wait for breakout of either of those zones. Breakout in the direction of trend is more reliable, but opposite situation is still profitable enough to be traded. You can use MACD to identify trend.
First position is entered with position size X1, at the candle closing outside of those boundaries (support or resistance zone).
Often times price returns to test the zone that was just broken.
If the test is successful support turns into a resistance and vice versa.
Sometimes test happens on lower timeframes and appears as single candle.
One of the most typical test formations is candle with extremely tall wick briefly penetrating broken S/R zone. Next candle of successful test is clearly bullish / bearish in the direction of breakout.
This candle will confirm both breakout and the test and we will enter the trade with 2X initial order with same direction.
Take profit: Width of the triangle at its base will be mirrored as take profit. Distance will be added starting from breakout candle close.
Stop loss is placed at the low of the last downwards swing for buy position and at the high of the last upwards swing for sell position.
Avoid entering the trade on extremely wide breakout candle. Such a wide candle is a bad entry because most of the profit range is already covered. Entering wide candle lowers risk reward ratio tremendously.
Always pick only the best triangle patterns for your trade.