Ascending and Descending Triangles in Forex Trading

Forex traders say that “the trend is your friend” in the currency market. In other words, they try to ride a trend for as long as possible, buying dips in bullish ones and selling spikes in bearish trends.

The problem with this approach is that the market doesn’t trend that much. It depends very much on the currency pair and the period considered.

Of course, any EURUSD trader that was bullish this 2017 will argue that the pair was in a stable trend for most of the year. It rose from 1.05 to over 1.20 in less than six months, in an almost vertical line.EURUSD.iDailyThe problem is that the market doesn’t form such trends often. Moreover, even during trends so strong, it takes time to consolidate, to build energy before breaking, higher in this case.

Rookie traders will argue that this is the easiest trend to trade. Simply stay long until the channel breaks.

I tend to argue with them. Because the enemy to a trading account is the trader him/herself, staying long on this time frame (daily) isn’t easy.

Traders face a tough decision in the fear/greed play: to close the position/positions before the weekend or to keep them open.

Ascending and Descending Triangles

To be more exact, this bullish trend took over 130 days. During this time, there were a few weeks where the intraday/intraweek price action was extremely bearish. That’s where the trend consolidates and when triangles form.

If the triangle breaks in the same direction with the underlying trend, it is called an ascending triangle (in a bullish trend) or a descending one (in a bearish one). Effectively, the price builds energy to break in the same direction.

Let’s zoom in the previous EURUSD chart:

eurusd chart

We see that for over twenty-three (23!) days, the price didn’t do anything. It merely consolidated on the horizontal.

You can say what you want, but the truth is that the psychological factor in trading will see many of retail traders closing the previous long trades, booking the profits, and most of them even going short for whatever reasons.

If you add the fact that the EURUSD has a negative swap for trades kept open overnight, few retail traders bear to pay that small interest on a trade, for almost a full month.

Yet, the market formed a classic ascending triangle: a bullish pattern that only sees the price building energy around a horizontal line.

That horizontal line isn’t mandatory to look like in the chart above. The notion of an ascending or descending triangle comes from the stock market, where the patterns were identified for the first time.

Due to the higher volatility on the Forex market, the price rarely hesitates and consolidates around a horizontal line. Instead, the line has a slightly ascending or descending angle, keeping the notion of an ascending or descending triangle alive.

Conclusion

Ascending and descending triangles are continuation patterns. Keep in mind that the Forex market, despite the impression it gives, it consolidates most of the times.

When this happens, like it does in over 65% of the cases, a triangle forms. Triangles are the favorite way for the market to consume time, and they can be either reversing or continuation patterns.

If the trend continues in the same direction, an ascending or descending triangle formed. All traders must do is to correctly interpret the break and jump on a trade when the trend resumes.

 

Why is Forex Trading Difficult But Profitable?

Why Is Forex Trading Difficutl

Forex trading involves buying or selling a currency pair to make a profit from its movement. But, why do currency pairs move in the first place?

Except they’re in a monetary union, like the Eurozone, every country has a currency of its own. The US dollar in the United States, the Canadian dollar in Canada, the Pound in the United Kingdom, and so on.

A currency reflects the shape of that respective economy. A stronger economy has a stronger currency.

The Forex dashboard comprises different currency pairs. Or, pairs two currencies with one another.

They reflect the differences between the two economies. As such, they move a lot.

This is what matters for Forex traders. When the currency pairs move, there’s scope for some profit to be made. Or, a loss.

Why is Forex Trading Difficult?

Forex is the most difficult financial market in the world. If you make it here, you can make it in any other market.

Other markets have their technicalities, specific conditions, and so on. In some cases, they are even limited.

Not the Forex market. Over five trillion dollars change hands every day in this market.

This is both a blessing and a curse. Blessing, because traders can virtually sell or buy unlimited amounts.

Do you want to dump a hundred lots of a currency pair? Not a problem in the Forex market.

Liquidity is there. But, with liquidity, comes risk.

Prices change in a blink of an eye. On no new, no nothing. Simply, they stretch for some stops.

The players in the Forex market make it very difficult for traders to succeed. Central banks, Forex brokers, liquidity providers…all have an interest in this market.

Some apply the monetary policy, like is the case with central banks. Others, simply trade in the opposite direction of their clients, like some Forex brokers.

But, the most important factor comes from the algo-driven conditions in the Forex market. High-frequency trading, or algo-trading, is king here.

Why is Forex Trading Profitable?

Retail traders didn’t have access to the interbank market until relatively soon. A decade ago or so, technological advances allowed for brokers to target retail traders.

As such, every trader’s dream of financial independence come closer to reality. Not that everyone wins.

But, at least the idea that one can make it on the financial markets attracts people. And, some do make it.

With knowledge and a disciplined approach, trading is profitable. It may be the most time-consuming and full of stress job on earth, but it is worth it.

Fortunes can be made virtually overnight. That is, in a shorter period than working a regular day job.

But, careless traders can lose too. Unfortunately, retail traders fall into the second category most of the times.

Conclusion

Even though conditions are against retail traders, the fact that now they can access the interbank market at a very low cost offers an amazing opportunity. One that didn’t exist some time ago.

As such, the possibility is there. Hence, only the idea that huge profits can be made, attracts and will still attract people to Forex trading. No matter how hard it is to make it in this industry!