Submit by joy22 03/12/2012
Triangle’ formation: It’s called a triangle because when you draw the support and resistance lines, you get the shape of a triangle…
In this example, we see that prices actually hit the support and resistance lines 5 times.
All right, back to analyzing the triangle…
Can you see how prices fluctuated less and less over time inside the triangle?
This indicates a buildup of pressure, much like in the metal spring example I mentioned earlier.
And when either the resistance or support level is broken, prices will shoot out in the direction of the break.
Pretty simple, huh?
*Warning*: You have to be careful about where you place your stop orders when you trade on these ‘explosions’. After support/resistance is broken, prices will occasionally fall back a little before continuing in the direction of the break.
In the above example, we see that prices did fall back ‘into the triangle’ temporarily, before continuing with the uptrend.
Triangle Trading Pattern
Many traders’ stop loss orders would have been triggered there, since most people like to place their stop orders just above or below support/resistance lines. If you’re trading on a triangle ‘explosion’, make sure your stop loss allowances are not too tight!