Breakout Trading

Ever wonder how to trade triangle patterns that form on your charts? Or maybe you have seen the same pattern over and over and didn’t even know they were what’s called “triangle pattern trading.” In this strategy today you will find out key price action analysis like: triangle pattern technical analysis, triangle shape pattern, descending triangle chart pattern, ascending triangle chart pattern, and much much more!!

Triangle patterns in forex, stocks, options, and futures form on all time frames and take very little effort to spot.

Here is what a triangle pattern looks like:

breakout trading indicators

What is basically happening here is the buyers and sellers are at a draw with each other. Basically, there is no clear trend forming and thus it will keep squeezing smaller and smaller following the trend lines.

Think of it as a tug of war that is going on between the buyers and sellers.

As the two lines get closer and closer together it is quite evident that something will have to give. Whoever wins the battle will be who you want to grab a ride with by entering a buy or a sell.

Different Triangle Patterns in Trading

1.Symmetrical Triangle: The price will bunch up and converge together.  You will see lower highs and higher lows. Here is an example:

trading breakouts forex

2.Ascending Triangle: There is resistance at the top and higher lows that form at the bottom. Like this:

 

stock breakout indicator

3. Descending Triangle: These triangles are similiar to an ascending triangle, however, they are the opposite of them. So what you will see support at the bottom and lower highs at the top. Like This:

how to identify breakout stocks

 

Now since you know what to look for lets go ahead dive into strategy that trades these triangle patterns.

Before we do that here are some important things to keep in mind.

  • This strategy can be traded on any time frame
  • Any market
  • No indicators required. Just lines that you draw and price action.

Rules for Breakout Triangle Strategy

 

Rule #1: In Breakout Trading: Find a forming Triangle (ascending descending, or symmetrical)

If you are having trouble with this concept simple look at the examples above for clarification. This is the critical part to this strategy. Find out where the price action is bouncing off of. Is it support? resistance? Look at the price action and determine what is happening.

price breakout indicator

So there is a lot going here in the picture above. Do you see the three arrows pointing to resistance on the horizontal line on the top? Or the higher lows at the bottom? This is a great triangle and one that I would trade every time if it would meet all of the rules of this strategy.

This triangle has already formed but what does it look like before it gets there?

Check this out:

stock breakout signals

Now when this happens:

You will draw the bottom line at this area to draw you a triangle, and in this case, it will be an ascending triangle. The reason why I drew this line here is that the price seemed to hit this area and “bounced” right off of it and went back into the triangle The Symmetrical, Ascending, and Descending triangle patterns can all be used with this strategy. I just want you to know that they come in different shapes and sizes 🙂

Rule #2  Of the Breakout Triangle Strategy: Wait for a Break of the Triangle Pattern

Now all you need to do is get your popcorn out and wait for a break of the triangle that you drew. If it’s on a daily time frame it may be a week before you see this. If it’s an hourly timeframe, it may not break until the next day.  What’s important is that it breaks. If you go back in your charts and draw some of these you will find that when this break occurs more often than not the break happens fast and it is usually very powerful. Which is why you need to learn how to draw these on your charts so you can cash in on those pips!

indicator to confirm breakout

Once you see a breakout above the triangle, it will always be a BUY

If it breaks out below the triangle, it will be a SELL.

This example broke out above the triangle so that we will be looking for a BUY trade.

If you are unsure if it broke above or below, DONT TRADE IT!

Rule #3 of this Breakout Trading System: Let Price Settle than Enter trade

Once you see that it broke your triangle that you drew you can technically go ahead and trade at that position. This method would be for more advanced traders who also consider the current price action and what the volatility of the market is.  There is a bigger risk trading this way, but I could pay off if you are identifying the correct price action and the market does what it is supposed to do.

So in our example, which is a GBPUSD (1 hour chart) currency pair, I bumped down to a lower time frame (15-minute) to enter this trade.

 

Some strategies I like staying in the current time frame, but this one, in particular, I know that once this triangle is broken, there is a possibility of a huge move up or down!! The earlier you get in the better!

Exit/ Stop Loss

When you start to see the price consolidating than that would a great place to exit the trade:

As you can see, that is what happened here so we would exit this trade for a +89 pip winner.

Place your stop loss anywhere between 30-60 pips from your entry. This can be adjusted depending on what time frame you are trading. From a 1-hour to daily time frame 30-60 pip stop is ideal. Any time-frame below that, consider a 10-30 pip stop loss.

Conclusion 

Thanks for reading the breakout triangle strategy! Be sure to check out some of our other strategies. If you enjoyed this one then maybe price action is your specialty. Here is our price action pin bar strategy. Triangle patterns are easy to find and upon the break of the triangle they usually end up moving a great amount.  Let us know what you think of this strategy.

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