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Ascending & Descending Triangles: Revealing Price Action Setups
When boiled down to its most essential element, the goal of every trader is quite simple—buy a security at X and sell it at a price higher than X, or sell a security at X and buy it back at a lower price. The very difficult challenge that every trader faces on a continual basis is trying to determine when to buy and sell a financial product. One of the most powerful tools to help make sense of seemingly random price action are price patterns.

Martin Pring is a price technician who is well-known and widely respected in the financial community. Pring has written several books on technical analysis, but none is arguably as good as Pring on Price Patterns. Before Pring wrote the book, he joined with the research firm Recognia, and together they identified and tested 5,000 patterns between 1982 and 2002 in order to determine the reliability of price patterns when trading the forex market.

The research results were quite revealing. According to Pring, price patterns proved to yield positive expectancy when tested over decades of historical research, especially when they formed in the direction of the overall trend of the underlying security. In this article we will discuss two powerful price patterns that regularly form on price charts: the ascending triangle and the descending triangle.

Descending Triangle
This price pattern is either a bullish continuation pattern or a bullish reversal signal, depending on where it forms in relation to the previous price action.

In the chart directly above, a descending triangle is forming. This price pattern is defined as a clear base of horizontal support to the downside and successive lower HI’s to the upside. The idea is that eventually price will break below the horizontal line of support, and make a quick, strong move to the downside.

In this particular descending triangle on the EUR/USD M15 chart, the pattern did eventually break down, which is a strong entry signal. This specific pattern would have yielded a nice 40+ pip move in under one hour at an online forex brokerage.

Ascending Triangle
An ascending triangle forms in the exact opposite manner with a horizontal base of resistance to the upside and successive higher LO’s. Eventually price will break through to the upside once there is enough buying pressure.

Psychology Behind The Triangles
It is essential to understand the human psychology behind both of these price patterns. When price is forming a Descending Triangle as in the charts pictured above, basically there is a horizontal price level which buyers are protecting. In the chart above it is the 1.4050 level. Each time price is driven down to the 1.4050 price level buyers come into the market with strong demand for euros and price is pushed up off the 1.4050 level.

The interesting phenomenon, though, is that each time price reaches the 1.4050 level, buyers are never able to push price back up to its previous HI. This is why we see successive lower HI’s. This is evidence that the buyers are losing steam. There power to hold the 1.4050 level is disintegrating, and each time sellers push price down to 1.4050, buyers are losing more and more momentum. Eventually, the pressure is too much and sellers take control of the market, pushing price down below the 1.4050 level.

There is no steadfast rule on how to enter the market based on these price patterns. Some traders will enter as soon as the horizontal support/resistance level is broker, some will let price break the level, and then enter on the retest, and still others will enter before price even breaks the level, in anticipation that it will. Conversely, stop loss should always be placed on the other side of the price pattern (beyond the HI’s in a Descending Triangle and below the LO’s in an Ascending Triangle). The best way to trade these price patters is to find which entry suits your style and trade accordingly. Remember that forex trading is risky and that leverage should be kept low. Never risk money in the forex market that you cannot afford to lose.