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How to Trade Descending Triangle

Descending triangles give technical traders the opportunity to make substantial profits over a brief period of time.

The primary method of trading a triangle can been seen depicted below. Traders intend to use the descending triangles bearish bias to their benefit, and look to sell the AUDNZD at its current resistance levels. Our entry point can be found by identifying resistance by drawing a declining trendline by connecting the March and April 2011 highs with July 2012 high. Currently resistance is found near 1.2900 making it the first possible position to consider an entry order to sell the AUDNZD.
Stop orders should be placed above the current resistance line in case price breaks up to higher highs against our entry. In the example below, our stop resides above the July 2012 high at 1.3075. With a 175 pip stop in place traders can then extrapolate a positive risk reward ratio of their choosing. Descending triangles can also allow a trader to target support, near the previous low, as a potential take profit level. Currently support resides near 1.2400 which would allow for a potential 500 pip profit target.
It is important to remember that descending triangles occur prior to a market breakout. These triangles have a bearish bias and their presence on a chart is generally seen as a continuation in a downward trending market. When a descending triangle is found at the top of an uptrend a descending triangle can signal a pending reversal. Regardless of the direction taken, breakout traders may opt to enter the market when the AUDNZD moves through either the support or resistance levels mentioned above.

source dailyfx


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