Forex Trading System- Triangles

OVERVIEW

A triangle pattern occurs when a trend in either direction is in motion and the tradingrange temporarily diminishes. In the stock market, this is attributed to a retracementphenomenon that allows supply and demand levels to adjust to the recent price changesand is also called accumulation and distribution.

ASCENDING TRIANGLES

An ascending triangle is a point and figure (P&F) pattern that is contained within theline of resistance at the top and a 45-degree upward trend line. (See Figure 16.1.)

DESCENDING TRIANGLES

A descending triangle is a P&F pattern that is contained within the line of support at thebottom and a 45-degree downward trend line. (See Figure 16.2.)

SYMMETRICAL TRIANGLES

A symmetrical triangle is a P&F pattern in which the trading range decreases equally inboth directions and that is contained between a 45-degree downward trend line on thetop and a 45-degree upward trend line on the bottom. (See Figure 16.3.)

TRIANGLE SIGNALS

Traditionally, triangles have been considered to be continuation patterns. That is,whichever trend was in motion prior to the appearance of a triangle will be the sametrend after the conclusion of the triangle.

In the calculations that follow, a one-pip box size and a three-box reversal amountare used with the 7,000,000+ EURUSD database.

ASCENDING AND DESCENDING FREQUENCIES

Since ascending and descending triangles are symmetrical counterparts (inverse pat-terns rotated about the x-axis), the frequencies of their three-column sequels were cal-culated together. (See Table 16.1.)

The ascending triangle pattern and its nine most frequent three-column sequels are
shown in Figure 16.4.

The descending triangle pattern and its nine most frequent three-column sequelsare shown in Figure 16.5.

SYMMETRICAL FREQUENCIES

Given the number of Xs and Os in the symmetrical pattern as 9753 (i.e., a sequence ofcolumns consisting of nine, seven, five, and three Xs or Os), the most frequent three-column sequels are listed in Table 16.2.

The symmetrical triangle pattern 9753 and its nine most frequent three-column sequelsare shown in Figure 16.6.

OBSERVATION

Readers should be aware that by their very nature all contracting triangles are settingthe stage for a major breakout.