There are two types of triangles: symmetrical and ascending.
The ascending triangle is also called a bullish or rising triangle when the uptrending price action forms the shape. Conversely, the descending triangle is also known as a bearish or falling triangle when the down-trending price action forms the shape.
The most effective way to test the strength of a triangle pattern is to draw it around a price level and wait for the results.
We may use either the lagging or leading indicator when drawing a triangle.
How to Test the Triangle Strength?
1) Draw a line from the current price up to the previous resistance level.
2) Draw another line from the current price down to the previous support level.
3) If a third line is drawn from the current price up to the previous resistance level, we are not in a triangle. The triangle is weak, so we may continue until we find the right price area to buy or sell.
4) 3 lines drawn mean that price action has formed a triangle which means price movement is going upward and upward (also called bullish or rising). So investors should consider buying this triangle chart pattern as it suggests that prices are likely to continue moving upwards.
5) But if the third line is drawn from the current price down to the support level, we have a bearish or descending triangle. The triangle is strong, so we may continue until we find the right price area to sell or buy.
6) 4 lines drawn mean that prices have formed a triangle which means price action is going downward and downward (also called bearish or falling). So investors should consider selling this triangle chart pattern as it suggests that prices are likely to continue falling.
7) In all the examples above, price action has formed a triangle, so price movement is upward and upward (also called bullish or rising). So investors should consider buying this chart pattern as it suggests that prices are likely to continue moving upwards.
8) The bearish or descending triangle is strong, so we may continue until we find the right price area to sell or buy.
To draw a triangle around a price level requires some technical analysis skills. It's a common misconception that all triangles have three touchpoints. A triangle can have more or less than three touchpoints.
But the most effective way to test the strength of a triangle is to draw it around a price level and wait for the results.
So to find out whether investors should buy or sell this pattern, we wait until the price breaks out of the triangle chart pattern and confirm which direction it will be going by looking at other technical indicators and moving averages.
Ascending triangle
An ascending triangle is a bullish chart pattern that can be seen in any time frame but is most effective in a longer-term or smaller time frame, like the daily or weekly charts.
Triangles are not always easy to identify as they can be hidden behind other trends. But when it's possible to spot an ascending triangle chart pattern, we should consider buying even if the price action is unpredictable during the horizontal consolidation period.
An ascending triangle pattern suggests that the bulls are in control of the market and that a breakout to the upside is likely. In other words, after a market has been moving gradually up over time, an ascending triangle forms as prices reach a new high but are unable to close above it. This is due to selling pressure as traders take profits along the way. Soon enough, these short-term sellers are squeezed out as continued buying pressure pushes prices higher and higher, forming an ascending triangle chart pattern at the same time.
Descending triangle
A descending triangle is a bearish chart pattern that can be seen in any time frame but is most effective in a longer-term time frame or smaller time frame, like the daily or weekly charts.
Triangles are not always easy to identify as they can be hidden behind other trends. But when it's possible to spot a descending triangle chart pattern, we should consider selling even if the price action is unpredictable during the horizontal consolidation period.
A descending triangle pattern suggests that the bears are in control of the market and that a breakout to the downside is likely. In other words, after a market has been moving gradually down over time, a descending triangle chart pattern forms as prices reach a new low but are unable to close below it. This is due to buying pressure as traders take profits along the way. Soon enough, these short-term buyers are squeezed out as continued selling pressure pushes prices lower and lower, forming a descending triangle chart pattern at the same time.
How to Identify a Triangle Chart Pattern?
Triangle chart patterns consist of three trendlines, and the signal to enter a position comes when the price action breaks above or below this pattern.
1) Draw a horizontal line by connecting the high points of all three trendlines. The high points are the top of the up-trending triangle, which is drawn by connecting previous resistance and support levels in ascending order and forming an upward-sloping triangle.
2) The bottom of the down-trending triangle is a horizontal line drawn by connecting the low points of all three trendlines. The low points are the bottom of the down-trending triangle, which is drawn by connecting previous resistance and support levels in descending order and forming a downward-sloping triangle.
3) Look for a breakout point above or below the pattern, which means we have a signal to buy/sell.
This is a bullish signal if the breakout occurs at the first trendline. This is a bullish signal if the breakout occurs above the first trendline.
This is a bullish signal if the breakout occurs at or below the second trendline. If it breaks below the second trendline, this is a bearish signal.
Also, remember always to use your intuition when it comes to trading like we're all in different situations, and what works for one person may not necessarily work for another.
Conclusion
So you now know how to test the triangle strength to see what investors should do eventually. The ascending triangle suggests that the bulls are in control and a breakout to the upside is likely. The descending triangle suggests that the bears are in control, expecting a breakout to the downside.
The most important thing is to protect your trades by setting stop losses so you will not have to worry about losing money during a bad trade. And if you have any tips on identifying this pattern, we would be happy if you shared them with us through our comment form below.