Triangles
Price squeezes into a corner: the swings get smaller and smaller until it fires off one way.
Triangles — what it is?
A triangle is a pair of converging lines: every next high is lower than the last, every next low is higher. The range is compressing.
Classic analysis trades the break of one of the sides. The problem is that the triangle's boundaries are visible to everyone, and stops pile up behind both of them.
In practice it is the same compression as an inside bar, only stretched out over time. Compression always ends in expansion, but the direction of the first break out often turns out to be false.
Triangles — how it is built?
Drawn across the extremes with wicks, at least two touches per side. Close to the apex the triangle loses meaning: there is no room left to move.
Triangles — common mistakes
Entering on the first move outside the boundary.
Drawing a triangle across any converging swings.
Extending the lines all the way to the apex and waiting for the crossing point.
Not looking at which market phase the triangle appeared in: inside a trend and after a long move it means different things.
Related to
Glossary
- triangle
- converging support and resistance lines.
- high
- the highest price of the period.
- low
- the lowest price of the period.
- range
- movement inside a horizontal corridor with no clear direction.
- Inside bar
- a candle whose high is below the previous high and whose low is above the previous low. The range compressing.
- close
- the last price of the period. Considered the most important of the four: breakouts are confirmed by the close.