Trading triangle patterns—ascending and descending—is an age-old way of identifying price breakouts. But conventional wisdom about the patterns makes traders use them strictly to prove textbook relevance, leading to the traders’ losses. This article simplifies these very myths and unlocks the true dynamics of the triangle patterns to suggest a unique trading strategy for these with sufficient confidence and precision.
Traditional trading wisdom suggests that the ascending triangle for breakthrough is up and that the descending triangle indicates a breakdown down. Most people use this advice, only to encounter an upset outcome and a loss with no warning.
This page presents a refined view, focusing on momentum, longer time frames, and objective analysis in trading triangle patterns. This page does not adhere to outdated concepts but to practical views.
By shifting attention from pattern directionality to market momentum and using objective tools such as cycle indicators, the accuracy of traders and achieving consistent profits can be improved.
What Are Ascending and Descending Triangles
What are Triangle Patterns?
- Ascending Triangle: Well-defined by having equal highs and higher lows; traditionally bullish.
- Descending Triangle: Identified with equal lows and lower highs; conventionally bearish.
Although these shapes may hint at a breakout, they do not denote the direction of the breakout. This makes it necessary to venture more deeply than most surface-level analysis.
Debunking Myths Surrounding Classic Breaks
Just because an ascending triangle breaks up and a descending triangle breaks down does not mean that it must do so: the answer is market and supply/demand dynamics, which can break in either direction.
The Role of Momentum in Trading Triangles
Why Momentum Matters
Momentum is the strength with which the market moves, and this will be always with money flow. Instead of trusting the pattern shape only, momentum analysis along some higher time frames may indicate the probable breakout direction.
How to Measure Momentum
- Switch to a Higher Chart Time Frame: Use the 1:3 time frame ratio, say, a daily chart together with a 3-day chart.
- Measure Changes in Momentum: Monitor changes that reflect greater buying or selling pressure.
For example, if a triangle appears on a 1-hour chart, look at the 3-hour chart for a determination of whether momentum is in a bullish or bearish move.
Trading Strategy: Entry Before the Breakout
Why Early Entries Work
A breakout trader suffers from the occasional fakeout—prices briefly break the pattern and then reverse. If a trader enters before the breakout into the consolidation phase of the pattern, he is in front of the crowd, minimizing risk and maximizing gains.
Steps for Inside-the-Triangle Trading
- Identify the Triangle: Use objective tools to pinpoint cycle highs and lows.
- Monitor Momentum: Determine the stronger force—buying or selling—on a higher time frame.
- Enter the Trade: Once momentum aligns with your analysis, enter within the triangle rather than waiting for a breakout.
This approach ensures a better risk-to-reward ratio as trades are initiated closer to support or resistance levels.
Objective Tools for Accurate Triangle Analysis
The Importance of Objectivity
When drawing cycle patterns, inconsistency is often witnessed. For instance, picking random highs and lows might change triangle shapes and cause misleading information to the trader.
Precision with Cycle Indicators
Cycle indicators mathematically define objective highs and lows. This provides a firm basis for drawing triangle patterns. The removal of subjectivity allows traders to make their decisions based on rules rather than guesswork.
Triangle Patterns vs. Bollinger Band Squeezes
Triangle patterns share similarities with Bollinger Band squeezes, as both involve contracting volatility before a breakout. In both cases:
- Momentum is the decisive factor in predicting breakout direction.
- Reduced volatility signals an upcoming expansion, presenting lucrative opportunities for prepared traders.
Advantages of This Strategy
- Avoid Fakeouts: By trading within the triangle, you sidestep common traps that catch breakout traders off guard.
- Leverage Momentum: Momentum analysis ensures trades align with the market’s true direction.
- Increasing Precision: Cycle indicators are objective tools that avoid guesswork by using rules for deciding on what should be done.
Conclusion
Ascending and Descending Triangle Pattern Strategy contradicts conventional wisdom by shifting attention from pattern shapes to market momentum and objective analysis. Using higher time frames, momentum indicators, and early entries can give traders an upper hand.
Remember, success will come from preparation and adaptability. Break free from outdated methods and adopt this sophisticated triangle trading for consistent and profitable outcomes.
