Continuation Chart Patterns: Ascending and Descending Triangles

I want to continue talking about most popular chart patterns, but this time start analyzing continuation patterns: ascending and descending triangles. There might be more combinations of triangles, but most of them will have the same attribute: narrowing range. This is expressed by another attribute: two lower highs and two higher lows, which clearly indicates contraction in volume and a narrowing range. This eventually leads to a breakout up, or down. If you connect those lower highs with a trend line and higher lows with another trend line you should get a shape of a triangle.

Eventually price breaks either up or down and price moves strongly, usually in the direction of previous trend. If the previous trend was up, we would expect an upward breakout and if it was down, we would expect price to break downwards through the lower trend line.

How to trade these patterns

These technical patterns are best traded using breakout trading strategy. In case of an upward break we would place a buy stop above the second point of an upper trend line with a stop loss a few pips below the most recent support level. In case of a downward break we would place a sell stop below the second point of a lower trend line with a stop loss a few pips above the most recent resistance level.

Minimum expected target

How to calculate how far the price is going to travel? Well, nobody knows that for sure, but in most cases a formula that helps to calculate minimum expected target often works. You simply have to measure the base of the triangle or distance from the highest point to the lowest point and add the distance to the breakout point. When price eventually breaks up or down, that’s the minimum distance you expect price to go. If the base is 400 pips, that’s how much you expect (at least) price to travel from the breakout zone to your take profit target.

In most cases it will go much more and if you trade with a few or more positions you will be able to accumulate a lot more pips.

Below is an example of a small bearish (descending) triangle in eur/usd pair that was only a breather in a huge downtrend. Two high and two low points are clearly visible in the chart. You simply had to place a sell stop below the number 4 point in the chart with some 40-50 pip stop loss and when the breakout occurred you could have made thousands of pips, had you traded with a few positions.

descending triangle