1.
Symmetrical Triangle
There are 3 types of triangle chart patterns and the chart below shows the
differences between each very clearly:
Now, lets starts with the symmetrical triangle pattern first.
Is A Symmetrical Triangle Bullish Or Bearish Chart Pattern?
The Symmetrical triangle chart pattern is a continuation pattern therefore it can
be both a bullish or bearish pattern.
What does this mean then? Well, if you see this pattern in an uptrend, expect a
breakout to the upside. See an example below:
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If you see a symmetrical triangle pattern form in a downtrend, then expect a
breakout of this pattern to the downside like this one shown below:
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How To Draw A Symmetrical Triangle
• You will see price moving up and down but this up and down movement is
converging to a single point.
• You need a minimum of 2 peaks and 2 troughs to draw the two trendlines
on both sides.
• It will be only a matter of time before price breaks out of the pattern and
either moves up or down.
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Two Simple Ways To Trade The Symmetrical Triangle
#1: Trade the Initial Breakout
The best way is to confirm that the breakout actually happens with a candlestick
before placing your order. What I do I is for example, say I’m watching a
symmetrical triangle form in the 4hr charts and I know that soon a breakout will
happen. I then switch to the 1hr chart to wait for the breakout to happen. If a 1hr
candlestick has broken the triangle and closed below/above it, that’s my trade
entry signal. So I will place a pending buy stop/sell stop order to catch the
breakout from there.
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Often I want to make sure that the 1hr candlestick closes outside of the triangle
before I enter a pending buy stop or sell stop order to capture the move that
happens to avoid false breakouts while the candlestick has not closed yet.
But here’s the problem with trading triangle breakouts, see chart below:
I don’t like trading breakouts like the one shown above and here’s why:
• The stop loss distance is too large. I’d prefer to enter trades with breakout
candlesticks that are close to the trend lines that have been broken.
• I often see that such breakout of extremely long candlesticks are not
sustainable and price will often tend to reverse after such candlesticks as
can be seen by the chart above…notice that after the breakout candlestick,
there was one bearish green pin bar and then for the next 4 candlesticks
afterward, the price went down. This is what tends to happened with such
long breakout candlesticks. So if you entered a buy order using that long
breakout candlestick above, you would have to wait a while for your trade
to turn profitable.
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#2: Trade the retest of the trendline that is broken
• The second way to enter is to wait for a retest of the broken trendline in
the triangle pattern then either buy or sell.
• This may also be handy if you had an extremely long breakout candlestick
on the initial breakout, you best option is to wait for a retest of the
breakout trendline then if that happens you enter.
Stop loss Placement Options.
Here are 3 ways on how to place stop loss on triangle patterns, which include
symmetrical, ascending and descending triangle patterns which you will learn
next. The stop loss placement techniques here are applicable to all triangle
patterns so take note of that.
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2. Ascending Triangle Chart Pattern
And ascending triangle pattern looks like this chart shown below:
And this is how a real chart looks like:
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Is Ascending Triangle Pattern Bullish Or Bearish?
It is considered a bullish continuation pattern in an existing uptrend. So when you
see this forming in an uptrend, expect a breakout to the upside.
However, it can also be a strong reversal signal (bullish) when you see it form in a
downtrend.
Stop Loss Placement Options
You can use the strategies given in symmetrical triangle.
Take Profit Options
I prefer to target previous resistance levels as my take profit target.
Or as shown on the chart below, you can use the “x” pips distance as your take
profit target. Another way to do it would be say 3 times the “x” pips or 2 times
the “x pips” distance. That should give you your profit target level(s).
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3. Descending Triangle Chart Pattern
Important things to note about the descending triangle chart pattern:
The descending triangle chart pattern is characterised by a descending resistance
levels and a fairly horizontal support levels converging to a point until a breakout
happens to the downside as shown below:
And this is how a decending triangle looks like on a chart shown below:
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Is Descending Triangle Pattern Bullish Or Bearish?
It is a bearish chart pattern that forms in a downtrend as a continuation pattern.
However, this pattern can also form as a bearish reversal pattern at the end of an
uptrend.
Therefore regardless of where it forms, it’s a bearish chart pattern.
How to Trade The Descending Triangle Formation
Similar to the other 2 triangle patterns, you can either trade the initial breakout
or wait to see if price reverses back to test the broken support level and then sell.
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Note: with a triangular pattern, I often prefer to wait for a candlestick to breakout
and close outside of the pattern before I enter a trade. This helps to reduce false
breakout signals.
But there will be times when I will just trade the breakout with a pending sell stop
order just a few pips under the support level to catch the breakout when it
happens but when I do that, I sit and watch the close of the 1hr candlestick to
make sure that it does not close above the support line (if that happens, it may
mean a false breakout).
And then there’s the issues of extremely long breakout candlesticks again like
this:
As mentioned previously:
• when you have such extremely long breakout candlesticks like that, better
to sit and wait to see if price will reverse and get back up to the support
level that was broken ( a retest) which will now be acting as a resistance
level and then sell when that level is touched.
How To Take Profit
I prefer to use previous support levels, lows or troughs and use those as my take
profit target level.
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Another method of take profit that is commonly used is to measure the height of
the triangle and if the height is say 100 pips then that is your take profit target.
The chart below should give you a clear idea of how it’s done:
Note that on the chart, the descending triangle formed the end of an uptrend.
4. Head & Shoulders Chart Pattern
The head and shoulder chart pattern is a bearish chart pattern. This is what a
head and shoulder reversal pattern looks like:
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Important things to note about the head and shoulder pattern:
• The head and shoulders pattern is a bearish reversal pattern and when
found in an uptrend, it signals the end of the uptrend.
Here’s how this pattern forms:
• Eventually, the market begins to slow down after going up for some time
and the forces of supply and demand are generally considered in balance.
• Sellers come in at the highs (left shoulder) and the downside is probed
(beginning neckline.)
• Buyers soon return to the market and ultimately push through to new highs
(head.)
• However, the new highs are quickly turned back and the downside is tested
again (continuing neckline.)
• Tentative buying re-emerges and the market rallies once more, but fails to
take out the previous high. (This last top is considered the right shoulder.)
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Buying dries up and the market tests the downside yet again. Your
trendline for this pattern should be drawn from the beginning neckline to
the continuing neckline.
Here’s another example:
Here’s another one:
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How To Trade The Head & Shoulder Chart Pattern.
The following chart below makes it much clearer.
How To Calculate Profit Targets
• I use previous lows or troughs to set my take profit target.
• However, you can also use the distance in pips between the neckline and
the head as your take profit target level. So if the distance is 100 pips, then
if you trade the initial breakout, you set it at 100pips take profit target level
like the chart shown below with the two blue lines:
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5. Inverse Head and Shoulder Pattern
You will also see this pattern, though not as popular, it’s good to keep an eye out
for it. The inverse head and shoulder pattern is bullish reversal candlestick pattern
and just the opposite of head and shoulders pattern.
Here’s what it look like on the chart shown below:
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And this is what it looks like on a real chart:
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How to Trade the Inverse Head and Shoulder Pattern
You can buy the initial breakout of the neckline or wait for the re-test, that is wait
for price to breakout and then come back down to test the broken neckline and
then buy. Use bullish reversal candlesticks for trade entry confirmation if you are
waiting to buy on re-test.
I often tend to place my profit target on previous highs. One method of
calculating profit target is to measure from the head up to the trendline and what
the distance in pips is your profit target. See the two blue vertical lines in the
chart above.
6. Double Bottom Chart Pattern
A double bottom chart pattern is bullish reversal chart pattern and when it
forms in an existing downtrend, it signals a possible upward trend.
Here’s what It look like:
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