While we are on moving with our trade we only notice formation of triangle pattern only after it formed. Faulty trading strategy or half technical knowledge during this triangle formation leads to losses. Today let us discuss about how to trade triangle patterns.
Triangles are among the most popular chart patterns used in technical analysis since they occur very often compared to other patterns. Normally when market move side ways this pattern can occur and believe it or not most of the time market move sideways and less time in trends. There are three most common types of triangles which are symmetrical triangles, ascending triangles and descending triangles.
Symmetrical triangles occur when two trend lines converge toward each other and signal only that a breakout is likely to occur but is difficult to find the direction of the break out. So, is bit tough to trade. While Ascending triangles will have a flat upper trend line and a rising lower trend line and indicates a breakout higher is likely. So watch the upside break outs in such scenario. One can find a descending triangle when the pattern is characterized by flat lower trend line and a descending upper trend line that indicates a break down is likely to occur.
The magnitude of the breakouts or breakdowns is typically the same as the height of the left vertical side of the triangle. So, that can be your approximate target level in such trades.
How one can trade Triangle Pattern in Nifty
Theory part is over,what about practical part. Now let us think how one can trade such triangle pattern in Nifty. Above chart shows the answer. As for as our policy in trading goes we always book half the quantity as soon as we make 51 points and we hold on to 2nd half till we find optimum RSI divergence or reversal signal. This is good to make more profits and to handle situations like this triangle kind of patterns.
As usual it was uptrend market went into correction in first week of August 2017 and RSI showed perfect divergence on 11th Aug at 9685. Wait till the initial resistance breakout at 9774, which happened next day. Go long at breakout 9774 – 2 lots, book 1st half at 9825 next day which act as insurance for that trade if it hits stop loss. In normal cases one can observe nifty crossing resistance at different levels but in this case struggled to cross 200 ema and hold. For our strategy nifty must cross 200 ema decisively and hold which was not happened on 17th Aug which must prompts to sell 2 lots 9950 CE ITM at 66 as hedge to 2nd half of nifty long. 29th Aug opening indicates possible formation of triangle in nifty chart or indecisiveness in traders. Till expiry (31st Aug) the chart confirmed symmetrical triangle formation and in the last bar it showed a break out to close sold 9950 CE option at 3 and also 2nd lot nifty at 9910 both for good profits.
As there was a break out, next month nifty 2 lots (multiples of 2 say 2,4,6,8…) must be bought at 9910. Insurance of 51 points at 9961 came next day where 1 lot has to be booked. There after ascending triangle formation indicated upside breakout which happened on 11th Sep open and nifty rose to 10132 finally. It is nearing to the target calculation as shown in the chart.
We normally trade with simple strategy of support and resistance in nifty chart and have not given much importance to patterns like this one. After we and clients struggled during Aug – Sep we came across a solution for it which you read already. So, we believe learning is NOT a continuous activity when it comes to trading. So, there comes Chanakya’s quote – “Learn from the mistake of others, you can’t live long enough to make them all yourselves”.
We believe we brought some light on difficult part of trading. Wish you all good luck.