What are Ascending and Descending Triangle Patterns?
The Ascending and Descending Triangle Patterns confirm continued trends in the forex market. As a triangle pattern forms, it sends ideal buy or sell signals to traders accordingly. In this article, we will discuss everything about the Ascending and Descending Triangle Pattern in detail.
What is the Ascending Triangle Pattern?
The Ascending Triangle Pattern is a bullish pattern formed by connecting continuously increasing prices in the market. It provides traders with long trade opportunities as it is formed during an ongoing uptrend. This bullish chart pattern signals ideal entry price levels as there is a continued market uptrend expectation. It is formed by two trendlines –
- The rising or lower trendline which is drawn by connecting the low price swings in the market (also signals the support level of the currency pair)
- The horizontal or upper trendline which is drawn by connecting the high price swings in the market (also signals the resistance level of the currency pair)
The currency pair price increases and decreases frequently between these two trendlines. The trendlines provide traders with the resistance and support levels in the market. Slowly, the currency pair price ends up moving beyond the horizontal trendline (resistance level) and confirms a continued uptrend in the market, signaling a price breakout and providing traders with an entry opportunity.
Bearish Ascending Triangle Pattern
The Bearish Ascending Triangle Pattern is a reversal pattern that is formed during a downtrend, signaling a currency pair price increase in the future. It provides traders with short trade opportunities as it is formed during an ongoing downtrend. Above, we discussed how the Ascending Triangle Pattern works during an uptrend and is a bullish chart pattern. However, the same pattern can also form during a downtrend and signal either a continued downtrend or a market reversal into an uptrend.
- If the pattern occurs during a downtrend and the currency pair price breaks above the horizontal trendline, it signals a market reversal and signals traders to place buy or long orders
- If the pattern occurs during a stronger downtrend where selling pressures exceed buying pressures, the currency pair price breaks below the horizontal trendline and continues the downtrend, signaling traders to take an exit or short orders in the market
What is the Descending Triangle Pattern?
The Descending Triangle Pattern is a bearish pattern formed by connecting continuously decreasing prices in the market. It provides traders with short trade opportunities as it is formed during an ongoing downtrend. This bearish chart pattern signals ideal exit price levels as there is a continued market uptrend expectation. It is formed by two trendlines –
- The falling trendline that is drawn by connecting the high price swings in the market
- The horizontal trendline that is drawn by connecting the low price swings in the market
The currency pair price fluctuates between these two trendlines and provides traders with the resistance and support levels in the market. Based on these levels, traders make decisions on where they wish to place their entry and exit orders. Slowly, the currency pair price ends up falling below the horizontal trend line (support level) and confirms a continued downtrend in the market, signaling a price breakout and providing traders with an exit opportunity.
Bullish Descending Triangle Pattern
The Bullish Descending Triangle Pattern is a reversal pattern formed during an uptrend, signaling a currency pair price increase in the future. It provides traders with long trade opportunities as it is formed during an ongoing uptrend. Above, we discussed how the Descending Triangle Pattern works during a downtrend and is a bearish signal. However, the same pattern can also form during an uptrend and signal either a continued uptrend or a market reversal into a downtrend.
- If the pattern occurs during an uptrend and the currency pair price breaks below the horizontal trendline, it indicates a market reversal and signals traders to place sell or short orders
- If the pattern occurs during a stronger uptrend where buying pressures exceed selling pressures, the currency pair price breaks above the horizontal trendline and continues the uptrend, signaling traders to take an entry or long orders in the continued uptrend
Factors affecting the Triangle’s formation
1. Horizontal lines
The top horizontal line in an Ascending Triangle Pattern and the bottom horizontal line in the Descending Triangle Pattern are formed with at least two high price points or low points, respectively. These horizontal lines depict the resistance and support points of the pattern.
For a continued triangle pattern to exit, a strong trend must exist. If an Ascending Triangle Pattern is formed, there should be a prior uptrend, and if a Descending Triangle pattern is formed, it should be followed by a downtrend.
The volume and triangle formation are inversely related. As the pattern forms, the currency pair trade volume decreases. The moment the prices during an Ascending or Descending Triangle Pattern breakout, the volume expands due to the buyers and sellers competing in the market.
After the breakout in the Ascending Triangle Formation, profit targets can be set by calculating the distance between the highest price and lowest price points and adding it above the breakout level. This means if the price in the pattern fluctuates a lot, the profit targets are expected to be higher, and if the prices increase and decrease closer to each other, the profit targets are comparatively lesser.
5. Return to breakout
As soon as a breakout follows the Ascending Triangle Pattern’s horizontal resistance line, it becomes the pattern’s support line, indicating that prices now will not drop below this level. In the same way, as soon as a breakout follows the Descending Triangle Pattern’s horizontal support line, it becomes the pattern’s resistance line, indicating that prices now will not rise above this level. This return to breakout factor affects trade decisions once breakout takes place.
- Traders who enter the market in an Ascending Triangle Pattern can place their stop loss level at the resistance turned support level
- Traders who exit the market in a Descending Triangle Pattern can place their future profit targets at the support turned resistance level if the market reverses thereafter
Types of Ascending and Descending Triangle Pattern
Ascending Triangle Pattern
1. Rising wedges
The rising wedge is a technical indicator that signals bearish market reversals. It is an Ascending Triangle Pattern that has both trendlines rising upwards. The first trendline is formed through higher tops, and the second trendline is formed by connecting higher lows. It is a bearish pattern and indicates a significant currency pair price drop when the current price breaks below the lower trendline. The drop signals traders to place exit or short orders in the market due to the continued downtrend.
2. Bullish Pennants
The bullish pennant is a technical indicator that signals a continued uptrend in a bullish market. It is an ascending Triangle Pattern that is formed initially with a price increase in an uptrend. It is a bullish continuation pattern and provides traders with ideal entry or long signals in the market after the current price breaks beyond the upper trendline as the market continues to rise thereafter.
Descending Triangle Pattern
1. Falling wedges
The falling wedge is a technical indicator that signals bullish market reversals. It is a Descending Triangle Pattern that has both trendlines falling in the downward direction. The first trendline is formed by connecting the lower highs, and the second is formed by connecting the lower lows. It is a bullish pattern and indicates a significant currency pair price increase when the current price breaks above the higher trendline. The increase signals traders to place entry or long orders in the market due to the continued uptrend.
2. Bearish pennants
Bearish pennants is a technical indicator that signals a continued downtrend in a bearish market. It is a Descending Triangle Pattern that starts with a falling currency exchange rate, forming a symmetrical pattern as the prices fluctuate further. As it is a trend continuation pattern, it continues the bullish trend in the market and provides traders with exit or short signals as the price breaks below the lower trendline. The drop signals a continued market downtrend in the market.
How to use the Ascending Triangle Strategy?
1. Spot the flat resistance and rising support levels
When trading the Ascending Triangle Strategy, you can spot the flat resistance horizontal line that is made from the high price points. This line acts as the level where the currency pair price breaks and results in a continued uptrend, providing you with ideal buy signals. Thereafter, spot an increasing support trendline which is made from the low price point in the market during an uptrend and completes the triangle pattern formation. This level provides the trader with the price level beyond which the currency pair is not going to dip.
2. Apply 20-period RSI
The 20-period Relative Strength Index (RSI) enables you to understand how strong the continued trend in the market is. This, in turn, helps you realize overbought or oversold market positions and make entry or exit decisions accordingly.
- When RSI readings are above 70, it indicates an overbought market and signals traders to take short positions or exit the market due to a downtrend expectation
- When RSI readings are below 30, it indicates an oversold market and signals traders to take long positions and enter the market due to an uptrend expectation
3. Check prior trend
In most cases, before the Ascending pattern formation, the prior trend is a bullish or uptrend that signals a continued increase in prices thereafter. When the prior trend is bullish, it indicates a higher probability of the breakout to occur on the upside of the pattern, signaling you to long the trade.
4. Buy when price breaks above resistance
As soon as the currency pair price breaks above the horizontal trendline in an uptrend, it signals you to place buy orders as the market is expected to rise further. As soon as the pattern ends, a buy signal is sent right at the end of the horizontal flat resistance line.
5. Monitor position and sell to take profit
Once you have entered the trade, you can monitor your currency pair positions and place profit orders by calculating the measurement of the high and low price level of the Ascending Triangle Pattern and adding it to the breakout level. The point that will be ascertained will signal the ideal take profit level enabling you to lock in a successful trade.
How to use the Descending Triangle Strategy?
The Descending Triangle Strategy can be combined with several indicators like the Heiken Ashi Charts, Moving Averages, Reversal Top and Bottoms and many more. In this article, we will discuss the Descending Triangle Moving Average Strategy as it is one of the most accurate yet simplest strategies that can be used by both beginner and expert traders. The Descending Triangle Moving Average Strategy is best suited for intraday traders as it helps them identify profit targets and exit signals in a short-term time frame by eliminating any irrelevant price fluctuations. Here is how you can use the strategy -
1. Identify potential breakouts
Traders identify potential breakout levels by combining the existing Descending Triangle Pattern with at least two different periods (one long-term and one short-term) Moving Averages.
2. Take long/short orders based on the Crossover
The two Moving Averages help traders make trade decisions based on the Moving Average Crossovers before the breakout takes place.
- When the short-term moving average crosses the long-term moving average from above before the breakout, it signals traders to enter buy positions
- When the long-term moving average crosses the short-term moving average from above before the breakout, it signals traders to enter sell positions
Trade with the Ascending and Descending Triangle Patterns today
Trading with the two triangle patterns provide traders with an ideal entry and exit signal based on the breakouts. Trade with Blueberry Markets and get access to the best trading techniques and strategies for placing successful forex trades. Sign up for a live trading account or try a risk-free demo account on Blueberry Markets.
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