Crypto Trading Analysis: What Are Triangle Patterns?
Oct 22, 2021
Candlestick bars on a trading chart can be a useful tool to provide some guidance on the next possible price movements of a particular asset. Some of the most well-known chart patterns are often referred to as ‘classical chart patterns’. These chart patterns are regarded as reliable trading indicators and it’s important for traders to take note of them. Here, we discuss a member of the ‘classical chart pattern’ family: triangle chart patterns.
What Are Triangles in Trading?
A triangle is one of the most common chart patterns that every trader should familiarize themselves with. The reason triangle chart patterns are so important is because they help indicate the continuation of either a bullish or a bearish market. This type of chart pattern is called a triangle because of the triangle-like pattern that forms on a chart.
What Is an Ascending Triangle?
An ascending triangle is regarded as a bullish formation, in which traders anticipate an upside breakout (a break out of a triangle to the upside - ie. higher price above the triangle pattern). An ascending triangle is created by two trend lines, the first one is the upper line of the triangle and is horizontal, indicating nearly identical highs, which act as a resistance point. The second one is the bottom line of the triangle (formed by a series of higher lows) and indicates price support. This price support line is a line of ascension formed by a series of higher lows. Traders usually watch for breakouts from upper trendline (the resistance) in ascending triangle patterns. Once the upper trendline is broken this level then becomes support.
What Is a Descending Triangle?
A descending triangle is simply an inverted version of an ascending triangle. A descending triangle is regarded as a bearish formation, in which traders anticipate a downside breakout. A descending triangle is also created by two trendlines. The first one being the upper trendline which declines diagonally. This diagonal trendline is formed by a series of lower highs. The second trendline is the lower horizontal line which connects nearly identical lows. The breakdown happens when the price declines through the horizontal support line. Once the lower trendline is broken, this level now becomes resistance.
What Do They Mean "For Your Trading Style"?
As a trader, you should be very cautious of entering a trade before prices break the resistance line. By waiting for a confirmed break of the resistance line, you limit your risk as there is always the potential for a false breakout or breakdown. The price may move slightly out of the pattern, only to move back into it. It may be necessary to redraw a pattern as the price moves past the trendlines but fails to generate momentum to breakout.
As always, please do your own research, and devise your own strategies. This is not financial advice.
It’s important to remain vigilant and remember that crypto trading is highly speculative and involves risks. The crypto market is known for its volatility and can change directions quickly. Never risk more than you are willing to lose.