The Triangle approach employs candlestick patterns, multidirectional movements, and extremes. All of these require time to form, which is excellent because time is also required for consolidation, which usually precedes additional price growth or decline.
The Triangle trading strategy can be employed in Forex, futures, and stock markets on timeframes ranging from M1 to MN. Triangle, by the way, assumes the usage of a horizontal and converging triangle simply because it is the simplest form of the pattern with a limited range, as opposed to diverging or inclined triangle types.
Signal to buy by Triangle
Instead of a correction, the best signs emerge immediately after a large price movement. Triangles, on the other hand, can occur anywhere, so be cautious. So, these are the requirements for the horizontal converging triangle that the strategy can use as a purchase signal:
- The triangle must have at least five alternative local highs and lows.
- Each subsequent local high in the triangle must not
- Each subsequent local low in the triangle must not be lower than the one before it.
Once the signal pattern is complete, compute the tick distance between the first and second extremes. Then, mark 10% of the tick distance up from the maximum extreme plus the spread – and place a pending Buy Stop order there.
Signal to sell by Triangle
The signal pattern criteria for selling are nearly identical to those for buying. Only for determining the Sell Stop level, we use 10% of the distance between the farthest extremes down from the lowest local low, minus the spread.
You can still place two orders in a triangle directly after a momentum because, according to Elliott’s theory, such a triangle may arise in the final but one wave of the upper level. And, as long as the fifth wave can be abbreviated, you can use the approach to trade in the opposite direction of the previous momentum. In any case, be cautious while trading against the trend and try to avoid it entirely.
Stop Loss and Take Profit in Triangle
Protective orders are calculated in the same way as Buy Stop and Sell Stop orders: in the case of buying, mark 10% of the tick size of the entire signal pattern down from the lowest extreme. You can transfer the order for the first time when a candlestick closes higher than the entire triangle and a second one opens and closes above it in the case of buying. When such a breakaway occurs, the price is exceedingly unlikely to reverse.
When the price has covered the same number of ticks in the direction of profit that you are risking, move the trade to the breakeven point. Trail the position by Triangle using the same logic as the initial SL transfer: if your position is long, place it behind the previous local low right after a candlestick closes above the last local high plus one more candlestick opens and closes.
Money management with Triangle
This method is best suited for trading a fixed lot, which must be recalculated after each closed order and risking a fixed proportion of your current deposit. The utility of using this or that approach is also determined by the TF on which you are trading.
Price action trading can be challenging at times, but using the Triangle approach will help you trade in the forex market. If you intend to use the triangle technique in your trading, you must first understand about it before using it in your trades. If you wish to understand forex techniques in-depth, you can enroll in a capital varsity Forex trading course, where you will learn forex methods at your own pace and trade like a professional.