In this article, you will find the most important chart patterns. Triangles and Wedges are two of the most outstanding in the chart patterns list. In this article, you will also get information on how to use this tools and you will learn the differences and similarities between the two chart’s patterns mentioned before.
It is important to keep in mind that it is not so common that a price goes up or down in a straight line. In this case, it is normal to have trends behind a number of waves. In an uptrend, it makes the first legs up before and then consolidates before beginning the second leg; and vice versa for the downtrend.
It is usual to notice that the price is forming a triangle or a wedge, when the consolidation phase is in process.However, you can change the charts to a smaller period if you want to have a better idea.
For example, if your purpose is to trade 1-hour charts, you must make a modification to 5 or 15-minute charts once the consolidation phase starts taking place. Then, during that process, you have to draw a trend line connecting the tops and another one the bottoms of the price range. With these few tips, you will easily differentiate when a triangle or a wedge is forming. On one hand, you will notice that a triangle is forming once the top and the bottom trend lines finish in a single point, confining the price between them. On the other hand, in a wedge, the price breaks out in any direction before the two trend lines meet. In the following images, you can observe the differences between a triangle and a wedge.
Differences and Similarities between Trading Wedges and Triangles
It is possible to trade a wedge or a triangle when they are forming. You can observe in the first image that the top and the bottom lines are giving resistance and support.
You have to draw the resistance when the price has formed two peaks, then you can draw the support line when the price has formed two lows. In this case, you always have to take into account that the second low must be higher if you want to take it as a wedge or a triangle. If you want to trade a wedge or a triangle, you only have to sell at the top line with a stop above the resistance, and buy at the bottom line with a stop bellow the support. You can take many advantages of this method throughout bigger timeframe charts, such as daily or 4-hour charts, since there is no space left between the lines. However, there is a problem: if the profit target can be bigger, then the reward/risk ratio could be bigger too. If you do not take that risk and you trade smaller timeframe charts, you should choose a broker with small spreads and fast execution.
After explaining the advantages of the triangles and the wedges, you must also know that there is another advantage of these tools. The triangles and wedges are also very popular for indicating breakouts. It is important that you know the different types of chart patterns if you want to understand when you should predict which way the breakout is going to happen.
There are three different types of wedges and triangles: Ascending wedge/triangle, Descending wedge/triangle and Symmetrical wedge /triangle.
First, you will find that a rising/descending wedge is just forming after an uptrend in the first chart below. In this part, it is important to take into account that this means that sellers are matching buyers and reducing the price in a tight range, so a possible reverse could be close. At this point, you can observe that the bottom line that was acting as support before became into resistance just after the break to the downside. According to some traders, they prefer to sell when the price breaks the bottom line, and some others place a sell stop bellow that line. You must be cautious with these methods because it is common to find breakouts. In this case, it will be more convenient that you wait until the price closes bellow the bottom line and then you can try to sell on the retrace. If you follow this tip, you will reduce the risk and increase the income target. You can apply the same process to triangles.
In this case, we have the opposite of the ascending wedges and triangles, so it is important to make clear that it is only trustworthy after a downtrend. Thus, you can buy after the top line gives way instead of selling after the break of the bottom line. After trading these patterns, you will find that the profit target that you want is as big as the space between the first top and the first bottom of the range, you can observe it in the second chart below. However, it is important to point out that you have to make a difference between the first top and the first bottom, because sometimes the two lines of the wedge are not horizontal, just like the ascending one above.
You have to know that the bulls and bears are trying to get all the advantages that they can during these formations, but at some point, one side will not continue with the same pace even though this consolidation is taking place after an uptrend or a downtrend. When you are using ascending and descending wedge or triangle chart patterns for trading, you know which way the price will go after the breakout, but when you are using symmetrical wedges and triangles, you do not have a clear direction. However, you do not have to worry about it because you can trade them in the same way you trade raising and falling wedges/triangles. It is important to point out that you can buy and sell even if the price is bouncing inside the two lines of the triangle. Besides, if you only put a stop buy or a stop sell order above and below the triangle, you can also trade the breakout in either side. It is better if you open a trade just after the price breaks and retests one of the lines.
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