Triangle Chart Patterns in Forex

What is a Chart Pattern?

A chart pattern is a presentation that utilises graphs to indicate market trends and predict price movements. Chart patterns can be used to analyse all types of financial markets, such as stock, commodities, and currencies, to name but a few.

From novice traders to professionals, chart patterns are a crucial part of a forex trader’s strategy to discover trends in the movement of a currency’s price. Put differently, chart patterns are the cornerstone of technical analysis.

There are numerous chart patterns that can help a forex trader to gain a competitive advantage in the market.

List of 9 Common Chart Patterns

1. 🟩 The Double Top.

2. 🟦The Double Bottom.

3. 🟨 The Head and Shoulders – Incl. Inverse Head and Shoulders.

4. The Wedge – Incl. the Rising Wedge and the Falling Wedge.

5. The Cup and Handle.

6. The Pennant – such as Bearish and Bullish patterns.

7. The Flag – Incl. the Bullish Flag pattern and the Bearish Flag pattern.

8. The Rectangle – Encompassing the Bearish and the Bullish Rectangle.

9. The Triangle – which will be the rest of this article.

A Closer Look at the 9 Common Chart Patterns

The Double Top

The Double Top technical analysis pattern indicates a bearish reversal in trend. As the name suggests, it has a ‘M’ shape.

The Double Bottom

The Double Bottom is a signal for a bullish price movement and has a ‘W’ shape.

The Head and Shoulders

The Head and Shoulders pattern is a reversal pattern that is often seen in uptrends and also known for dandruff reversals. The Inverse Head and Shoulders is similar to the head and shoulders pattern, the difference being that it is inverted. This pattern signals a bullish trend reversal.

The Wedge

The Wedge chart pattern is characterized by two trend lines converging and signals that traders are still deciding where to take the pair next. A Bullish chart pattern that takes place in an upward trend with the lines sloping down is called a Falling wedge. A bearish chart pattern found in a downward trend with lines sloping up, is called a Rising wedge.

The Cup and Handle

The Cup and Handle pattern as the name suggests resembles a cup with a handle. The Cup is the shape of a ‘u’ while the Handle has a slight downward drift. This chart pattern is a bullish signal extending an uptrend.

The Pennant

Pennant chart patterns are continuation chart patterns that forms after strong moves. A Bearish pennant forms during a very steep, almost vertical downtrend. The Bullish pennant signals that bulls are about to go charging again.

The Flag

This pattern represents consolidation, meaning that it occurs after a large movement in price. It is also seen as a continuation pattern, meaning that the market is likely to continue in same direction when the pattern comes to an end. The Bullish Flag Pattern looks like a downward sloping channel/rectangle denoted by two parallel trendlines against the preceding trend and occurs as a brief pause in the trend following a strong price move higher.

The Rectangle

The Rectangle pattern is formed when price is bounded by parallel support and resistance levels. This pattern means a period of consolidation or indecision between buyers and sellers. When the price consolidates for a while during a downtrend, a Bearish Rectangle forms. When the price pauses temporarily during an uptrend it is called a Bullish Rectangle.

The Triangle

This pattern will be the focus of the rest of this article.

The Triangle Pattern

Triangle patterns appear frequently in the forex market and is one of the easiest patterns to discover.

Typically, the triangle pattern is described as a continuation pattern, implying that after the completion of the pattern, it is expected that price will continue in the same direction it was following before the particular pattern took shape.

The triangle chart pattern is identified by the following characteristics:

An upper and lower trendline, converging and ultimately meeting on the right side, creating a corner. The converging trendlines represent price that temporarily moves sideways.
The upper trendline (resistance level) is formed by connecting a series of highs, while the lower trendline (support level) is formed by connecting a series of lows.
To be considered a valid triangle pattern, the pattern has to include at least three touches of the resistance level and two of the support level, or vice versa.

Triangle patterns have three variations, namely the ascending triangle, the descending triangle, and the symmetrical triangle.

Symmetrical Triangle Pattern

This pattern is identified by two distinct trendlines:

A descending upper trend line that connects a series of lower peaks.
An ascending lower trendline that connects a series of higher lows.

Symmetrical triangles are neutral patterns and does not lean in any direction, implying that neither the buyers nor the sellers have the upper hand. However, it still favours the direction of the existing trend.

Generally, the pattern is formed during a period of consolidation, in anticipation of either a breakdown from the lower trendline, or a breakout from the upper trendline. A breakdown indicates the start of a new bearish trend, while a breakout signals the beginning of a new bullish trend.

Symmetrical triangle trading strategy

Finding the perfect symmetrical triangle pattern is quite rare. In addition, as mentioned, it could be a breakout upwards or a breakdown downwards.

When a breakout finally occurs, it is likely to cause a price move (upwards or downwards) that matches the size of the triangle formation, which are illustrated by the red lines in the illustration below. Therefore, it is important that traders recognise a potential breakout in the upper trendline or a potential breakdown in the lower trendline of the triangle to enable them to open the right position in the market.

Symmetrical triangle pattern

Ascending Triangle Pattern

The ascending triangle pattern has a flat upper trendline, while the lower trendline is rising. It is considered a breakout pattern.

The tops of the pattern are on the same level and the bottoms are ascending.

Typically, the ascending triangle has a bullish nature, indicating that buyers are more aggressive than sellers as price continues to create higher lows. Price tests the flat upper trend line and with more occurrences like this, the greater the possibility that the price will eventually break through the resistance level and continue the upward price trend.

When the price breaks through the upper trendline, more buyers enter the market, triggering more buying. Eventually, the upper trendline, which was formerly the resistance level, becomes the new support level.

Ascending Triangle Trading Srategy

When an ascending triangle is formed during a bullish trend, a trend continuation is expected. When traders identify this type of triangle on a price chart, they should be prepared to take advantage of a potential bullish price move, that corresponds to the size of the triangle, which are indicated by the red lines in the illustration below.

Breakouts through the upper trend line are used for setting entry points for long positions.

But keep in mind that breakouts through the resistance level (upper trend line) is not guaranteed. From time to time, the resistance level is too strong and there are not enough buyers to push the price through the level.

Therefore, traders should not be preoccupied with which direction the price goes, but they should be able to understand what the forex market is communicating, enabling them to be ready for movement in either direction.

Ascending triangle pattern

Descending Triangle Pattern

The descending triangle pattern is a mirror image of the ascending triangle and it is considered a breakdown pattern.

The pattern comprises a descending upper trendline and a flat lower trendline. The bottoms of the pattern are on the same level and the tops are descending.

This is a bearish formation, signaling that sellers are more aggressive than buyers as the price continues to create lower highs.

In this formation, price tests the flat lower trend line (support level) and the breakdown eventually happens when the price falls through the lower trend line as the downtrend resumes. The result is that the lower trendline, which acted as the support level, now becomes the new resistance level.

Descending triangle trading strategy

A high-volume breakdown from the lower trendline presents traders with an opportunity to initiate a short position in anticipation of a continuing bearish trend. Generally speaking, the take profit level is set using the vertical distance measured at the start of the descending triangle pattern, as indicated by the two red lines in the illustration below.

As with the other triangle patterns, be aware of false breakouts and make sure that the particular pattern is a valid one. A false breakout occurs when the price leaves the triangle, indicating a breakout, but then reverses direction and may even break out the other side of the triangle.

Descending triangle pattern