Triangle Formations In Forex Trading (Part II)
What is the crowd psychology behind a descending triangle? Every time the currency price goes down to a certain level that forms the support there are buyers who want to hold that level stubbornly for their own reasons. Buyers thus push the price up each time the support level is tested. Spotting a descending triangle in a downtrend signals the downside breakout of the support level.
Sellers are quite anxious to sell as they feel that the currency price should fall over time. Thus when the price bounces off the support level, the bears take the opportunity to short again.
If it is a down trend, spotting a descending triangle should allow you to be prepared for a downside breakout from the support level. Bulls and bears face a skirmish with both camps not feeling confident of the next market move as with an ascending triangle. This is the transition period from low volatility to high volatility.
When the support level is broken many of those long positions which have been placed above that level soon get stopped out. Prices tend to break in the middle or the final third part of the triangle formation.
Unless you have reversal signals in the form of technicals or turn around of the market sentiment, you should always assume the continuation of the prevailing trend. It tends to give off even more bearish vibes than if it is formed during an uptrend if the descending triangle is formed during an existing downtrend.
With that said, prices also sometimes breakout from above the descending triangle successfully in a burst of bullish momentum.
Symmetrical Triangles: A symmetrical triangle consists of two converging trendlines that join a series of lower highs and higher lows. A symmetrical triangle has some resemblance to a wedge pattern. There are no horizontal lines in symmetrical triangles. This differentiates it from the ascending and the descending triangles.
The higher lows are formed when buyers of the currency pair are willing to pay a bit more to get a piece of action. As they are willing to accept less and less of the price over time, the lower highs reflect the mildly bearish conviction of the sellers.
There is no way to predict the future breakout direction until one of the symmetrical triangle lines is penetrated. A symmetrical triangle tends to be less reliable as compared to an ascending or descending triangle. Breakouts usually occur in the middle or the final third of the triangle as with the other sloping triangles.
Decreased volatility can also be detected with the exponential moving averages and the Bollinger bands besides the triangle formation. You should always consider other pieces of information so that you can better pinpoint a higher probability trade set up when trading triangle breakouts. - 23208
Sellers are quite anxious to sell as they feel that the currency price should fall over time. Thus when the price bounces off the support level, the bears take the opportunity to short again.
If it is a down trend, spotting a descending triangle should allow you to be prepared for a downside breakout from the support level. Bulls and bears face a skirmish with both camps not feeling confident of the next market move as with an ascending triangle. This is the transition period from low volatility to high volatility.
When the support level is broken many of those long positions which have been placed above that level soon get stopped out. Prices tend to break in the middle or the final third part of the triangle formation.
Unless you have reversal signals in the form of technicals or turn around of the market sentiment, you should always assume the continuation of the prevailing trend. It tends to give off even more bearish vibes than if it is formed during an uptrend if the descending triangle is formed during an existing downtrend.
With that said, prices also sometimes breakout from above the descending triangle successfully in a burst of bullish momentum.
Symmetrical Triangles: A symmetrical triangle consists of two converging trendlines that join a series of lower highs and higher lows. A symmetrical triangle has some resemblance to a wedge pattern. There are no horizontal lines in symmetrical triangles. This differentiates it from the ascending and the descending triangles.
The higher lows are formed when buyers of the currency pair are willing to pay a bit more to get a piece of action. As they are willing to accept less and less of the price over time, the lower highs reflect the mildly bearish conviction of the sellers.
There is no way to predict the future breakout direction until one of the symmetrical triangle lines is penetrated. A symmetrical triangle tends to be less reliable as compared to an ascending or descending triangle. Breakouts usually occur in the middle or the final third of the triangle as with the other sloping triangles.
Decreased volatility can also be detected with the exponential moving averages and the Bollinger bands besides the triangle formation. You should always consider other pieces of information so that you can better pinpoint a higher probability trade set up when trading triangle breakouts. - 23208
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!
posted by X - Men @ 5:39 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home