**Trading Triangles and the Breakout Strategy**

A Triangle is an important formation as it can visualize modifications in price volatility. Triangle formations can provide high momentum trades and limited downsized risk.

**What is a Triangle?**

A triangle pattern signifies a period of decreasing volatility as price moves within the triangle. After a triangle formation is crossed, either upwards or downwards, volatility and momentum booms.

Triangles Formation

Triangles are distinct formations. At the start of this formation, triangles are found at their widest point. Afterwards, they move sideways by narrowing their price range. Finally, when the price crosses above or below a triangle formation, a strong momentum is born.

Applying the Triangle Breakout Strategy

The Triangle Breakout Strategy aims to trade the transition from low volatility to high volatility. But first let’s identify the three (3) categories of triangles.

**Three (3) Types of Triangle Formations**

Triangles can appear in the form of a continuation pattern or in the form of a reversal pattern. There are three types of triangle formations:

- Ascending Triangles
- Descending Triangles
- Symmetrical Triangles

(1)** Ascending triangles**

■ Pattern Type: Bullish Continuation or Reversal Pattern

■ Formation Type: Upward Slope Triangle

■ Trading Goal: Trading the Upside Breakout

Ascending triangles occur when the price has reached a resistance level and then it moves sideways by maintaining a slope of higher lows.

Here is how we may distinguish triangles between Bullish Continuation or Reversal Patterns:

(i) -If an ascending triangle is formed during an uptrend, then this is an uptrend continuation triangle.

(ii) -If an ascending triangle is formed during a downtrend, then this is a bullish reversal pattern.

Ascending triangles can be formed before the release of important news or other data. As the market shows hesitation regarding where it is heading, volatility steadily decreases by forming a sideway formation.

Usually ascending triangles are followed by uptrend breakouts and thus they are considered as bullish formations. These breakouts are often occurring at the end of the ascending triangle {3/4 of the distance between the start of the triangle formation to the lowest point of the volatility range}.

False Breakouts

Sometimes, but not most of the times, ascending triangles break out from below. This is happening if the resistance level is too strong, and there is not enough demand to push the price through it. In this case, the trade will be stopped-out. Ascending triangles as continuation patterns are more reliable than ascending triangles as reversal patterns.

(2) **Descending**** Triangles**

■ Pattern Type: Bearish Continuation or Bearish Reversal Pattern

■ Formation Type: Downward Slope Triangle

■ Trading Goal: Trading the Downside Breakout

Descending triangles occur when the price has reached a support level and then it moves sideways keeping a slope of lower highs.

A descending triangle, in general, is the exact opposite of an ascending triangle. As ascending triangles are seen as bullish formations, descending triangles are seen as bearish formations.

False Breakouts

Sometimes, descending triangles can break out from above. This is happening if the support level is strong, and there is not enough supply to push the price through it. If a descending triangle is formed during a downtrend, then it is a more secure formation.

(3) **Symmetrical Triangles**

■ Pattern Type: Bullish / Bearish Pattern

■ Formation Type: Neutral Slope Triangle

■ Trading Goal: Trading the Upside or Downside Breakout

Symmetrical triangles occur when the price moves between a strong support and a resistance level keeping a slope of lower highs and higher lows.

Symmetrical triangles are formed by two converging trendlines that contain a series of lower highs and higher lows. The symmetrical triangles have no horizontal lines.

The price breakout direction can’t be predicted until one of the two trendlines is crossed.

**Important Tips when Applying the ****Triangle Breakout Strategy**

Here are some important tips:

(1) Check the News Calendar and avoid trading when important news will be released

(2) The triangle formations are much more reliable when they are identified on daily or weekly charts. The shorter the timeframe used the more probable a breakout to prove false

(3) Prefer to trade ascending triangles that are formed on strong bull trends

(4) Prefer to trade descending triangles that are formed on strong bearish trends

(5) Ensure the strength of the breakout by ignoring the first breakout attempt

(6) Seek for one closing price above / below the breakout level on the 1-hour chart or on the 4-hours chart. Ideally, use the 1-day chart

(7) Ensure that each side of the triangle has already been reached at least twice

(8) Confirm the decreased volatility by using technical analysis tools such is the Bollinger Bands, ATR or Moving Averages

(9) Make sure that the price after the breakout has moved at least 10 pips above the support / resistance level

(10) Place a stop-loss at least 10 pips beyond the opposite side of the triangle

■ Triangle Breakout Strategy

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