Triangle formations typically signify market uncertainty prior to a breakout which indicate an upward or downward market trend

Bitcoin and Crypto Technical analysis Wednesday, July 06, 2022 - 20:19

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<source: Investopedia>

A symmetrical triangle is a chart pattern consisting of two trend lines that converge and connect a sequence of peaks and troughs. The resistance line in this pattern slopes downhill from the top while the support line rises upward from the bottom. 

In essence, this pattern indicates a time of consolidation before the price is driven to break out. The beginning of a new bearish trend is typically signaled by a breakout from the lower trendline, whereas a breakthrough from the higher trendline denotes the beginning of a new bullish trend. A lot of traders combine symmetrical triangles with additional technical indicators that serve as confirmations. 

This pattern is also commonly known as a wedge chart pattern. Rising wedges, falling wedges, ascending triangles, and descending triangles are all terms used to describe trend lines that converge at differing slopes in this pattern.

Typically, it takes longer than three weeks for symmetrical triangle patterns to develop. Both an upward and a downward breakout are possible. Sometimes the formation can also lead to no breakouts.

What does this pattern indicate?

Asymmetrical triangle formations typically signify market uncertainty prior to a breakout, in contrast to ascending and descending triangle patterns, which indicate a fairly obvious upward or downward market trend. The two convergent trend lines suggest a narrowing trading range with changing support and resistance levels. 

<source: Bybit>

In other words, a positive trend prior to the market's consolidation into a symmetrical triangle suggests that another breakout is possible. Hence, traders can open positions as soon as the price begins to move in one of two directions, following the identification of a symmetrical triangle. 

How to trade this pattern?

When trading with the symmetrical triangle pattern, here are a few things traders should keep in mind: 

  • To make an equal slope, the converging trend lines should also be converging.
  • Ideally, the bullish symmetrical triangle should form during an ongoing uptrend, and prices should break through the upper trendline.
  • Similarly, prices will break out from the lower trend line in a bearish symmetrical triangle formed in an ongoing downtrend.

It is important for traders to remember that symmetrical triangles are rarely fully formed. Due to this, they shouldn't ignore what price movements they convey just because the pattern itself isn't perfect. 

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.

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