Many Forex traders like to use technical analysis to help them make trading decisions. In this article on technical charts, I'll discuss the uses and implications of the triangle candlestick pattern.
What Is A 'Triangle'?
Triangle patterns are relative easy to identify on the trading charts. It is formed by price action that is bound within two converging trend lines. The resistance line should be sloping downwards while the support line should be sloping upwards. The market price should be 'bouncing' between these two trend lines, alternatively hitting the top and bottom of the 'triangle'. A minimum of four 'bounces' should be observed before this triangle formation can be considered a reliable pattern to trade with.
Triangles are most effective when observed during active trading hours with high liquidity.
What Is The Significance Of A Triangle?
The triangle candlestick formation indicates intense competition between the buyers and sellers. It shows that they are aggressively fighting each other, with the winning side to be declared once the other side loses its buying/selling pressure.
It may help to liken this concept to the compression of a metal spring. Imagine yourself compressing a metal spring: as the spring comes under increasing pressure, it becomes harder and harder to press it together. Once you let go of one side of the spring, it will jump out in the direction of the release.
This is similar to how the triangle formation pattern works in the Forex market. As prices fluctuate (or 'bounce') less and less wildly, it shows the increase of pressure buildup in the market. When either buyers or sellers give way, prices are likely to shoot strongly in favour of the other (i.e. stronger) side.
How To Trade With Triangles?
Most traders will wait until there is a breach of either the upper or lower trend line before entering into a trade. Because no one will know in advance which side (i.e. buyers or sellers) is stronger, many people prefer to let the price action show them.
The moment prices close above the resistance line, they buy. If prices close below the support line, they sell.
To learn more, download my free 26-page guide here: "Forex Trading Traps!"
Harold Hsu is the owner of http://www.ForexSystemProfits.com where he provides premium Forex trading tips and resources.
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