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Chapter 14, Part VII. Triangles. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Commander in Pips: Well, there are some moments, but it’s very dangerous to anticipate a breakout and open position for that purpose. You have to get a very strong signals and signs from the market that could give you confidence about the direction of a breakout.

    1. It counts that perfect triangle should have 5 swings inside the triangle’s body and the breakout should happen in continuation of 5th swing. In this case, the triangle will be a continuation pattern. But this is not absolutely necessary. Sometimes, a triangle has just four swings, or 1-3 swings and then choppy price action inside the triangle without any well-defined swings.

    2. If market didn’t break the triangle during 5th swing and formed 6th swing – then it could lead to one of two results:

    - Breakout will be in opposite direction to previous trend (as on chart #1);

    - The market could show shift to sideways consolidation and exit from the triangle naturally, flat, without any breakout.

    3. As with a wedge pattern, if the market couldn’t reach the opposite border of a triangle and returns right back (this usually happens during 5th or 6th swing) – then very probably that market will show a breakout in this direction.

    4. Classical target of triangle pattern is a distance of the initial swing of the triangle that counts from breakout point in th direction of the breakout (Chart #1). But you can apply different tools, say, Fib extensions to estimate the target – as on our chart #1.

    5. Very commonly that with symmetrical triangles, the mostly applicable Fib ratio is 0.786 or 0.88. For instance, on chart #1 the former lows are 0.88 retracement from the latter ones, so as highs. If closer to an end of triangle (5th swing) the level of retracement becomes, say, 0.618 or even 0.5 – then it could give you an early warning about breakout direction. Assume that the market has formed a low of 5th swing, but this low is just 0.618 from the previous swing up – then, possibly sellers have become weaker and breakout will be to the upside. But do not rely only on this sign – use it only as a part of overall context.

    Pipruit: Cool. This could be useful. But how to trade a triangle, if we do not know the direction of breakout?​
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