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Triangles in Trading: what is it and how to use it?
Within the technical analysis there are the triangles in trading, a tool that works to try to trade with price breaks.
These graphic patterns can give us a lot of information and are common in trading cryptocurrencies, stocks, forex and more. For that reason, we will now mention what they are and how to use them.
What are triangles in trading?
A triangle, or triangle pattern, occurs when the price of an asset moves within an increasingly narrow range, creating a display of convergence to a point. This pattern is generally considered a “continuation” pattern, meaning that the price tends to follow the previous trend once completed.
To identify a triangle, at least five test points between support and resistance are necessary, for example, two at the support line and three at the resistance line, or vice versa.
Triangles in trading are a simple but powerful tool that helps to visualize and balance the three main factors that influence the outcome of any trade: objectives, alternatives and relationships.
- Objectives: represent what you want to achieve with the trade, such as price, timeframe or profit. Clearly defining your objectives is fundamental to guide your actions and strategies during the negotiation process.
- Alternatives: Reflect what you can do if the negotiation does not achieve the desired results. Having solid alternatives is essential to keep your negotiating position strong and be prepared for different scenarios.
- Relationships: These refer to how you interact with the other parties involved in the negotiation. Building and maintaining positive relationships based on trust, respect and effective communication is key to reaching successful agreements.
By balancing these three elements, the negotiation triangle helps you identify and prioritize the very important factors, allowing you to find the ideal balance between them. This balance is essential to conducting effective negotiations and achieving mutually beneficial results.
Types of Trading Triangles
There are basically three types of trading triangles:
- Ascending triangle
- Descending triangle
- Symmetrical triangle
Ascending triangle
In this pattern, the resistance line is horizontal, while the support line is sloping upward. This suggests that the buying pressure is gradually increasing relative to the selling pressure, often being very aggressive.
When looking at an ascending pattern, the buy lows are getting higher every day.
Descending triangle
Unlike the ascending triangle, in the descending triangle the support line is horizontal, while the resistance line is sloping downward. This indicates that the selling pressure is increasing relative to the buying pressure and could lead to a downward breakout of the pattern.
It is advisable to set the stop loss correctly, as when the price goes down, it indicates a lack of buying pressure, and sellers are willing to accept lower prices, resulting in a series of lower highs.
Many traders place their stops just below the support level, grouping sell orders. When the market moves and the price breaks that support level, these stop orders are triggered, which increases selling pressure and accelerates the price decline.
Symmetrical Triangle
In this pattern, both the support and resistance lines are sloping in opposite directions, forming a symmetrical triangle pattern. This suggests that the buying and selling pressure are balanced and that a breakout in either direction could occur, making it quite unpredictable.
Like other types of technical analysis, symmetrical triangles are often most effective when combined with other technical indicators and chart patterns.
Traders often look for an increase in volume as a sign of confirmation of a breakout. In addition, other technical indicators can help predict the potential duration of the breakout, allowing traders to make more informed decisions about their trading strategy.
The Stochastic indicator, RSI indicator and even the moving averages will help to make better buying decisions.
How can you use the trading triangle to plan your strategy?
Before starting any negotiation, it is essential to use the triangles in Trading to elaborate your strategy and anticipate possible outcomes. By following a structured process, you can
- Define clear objectives:
- Identify your main objectives and interests in trading.
- Establish the minimum and maximum outcomes you are willing to accept and know how to communicate your objectives effectively.
- Evaluate alternatives:
- Determine your best and worst alternatives for a negotiated agreement (BATNA and WATNA).
- Look for ways to strengthen your BATNA while weakening the other party's BATNA, thereby increasing your negotiating position.
- Understand the relationships:
- Analyze who the other parties involved in the trade are and their objectives, alternatives and relationships.
- Build relationships based on trust, cooperation and respect, essential factors to manage conflicts, emotions and expectations.
With the triangles in Trading, you will be able to do the following:
- Increase your confidence going into the negotiation thanks to prior preparation.
- Take advantage of your position by understanding and reinforcing your alternatives.
- Gain flexibility to face different scenarios and adjust your approach as the negotiation progresses.
How does the negotiation triangle apply to different scenarios?
The negotiation triangle is very useful and versatile, which can be applied to various scenarios and contexts. For example
- Negotiating with investors:
- Objectives: get funding for your startup and establish a fair valuation.
- Alternatives: Evaluate different funding sources and investment strategies.
- Relationships: Build credibility, alignment and commitment with investors for a successful partnership.
- Negotiating with Customers:
- Objectives: Sell your product or service, generate revenue and create value for customers.
- Alternatives: Develop pricing and differentiation strategies to attract and retain customers.
- Relationships: Foster customer satisfaction, build long-term relationships and promote loyalty.
- Negotiate with Employees:
- Objectives: Attract, retain and motivate talent to drive startup growth.
- Alternatives: Implement competitive compensation and benefits policies for employees.
- Relationships: Promote a positive organizational culture, engage employees and encourage high performance.
If you use the triangle in trading to carefully analyze each situation, prepare strategic options and adjust tactics as needed, you will be better positioned to achieve the best possible results for your startup.
This systematic, holistic approach can help maximize the value generated in each deal and strengthen relationships with investors, customers and employees, contributing to the continued success and growth of your company.
Keep learning 🤓
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- Triangles in Trading: what is it and how to use it?
- What are triangles in trading?
- Types of Trading Triangles
- Ascending triangle
- Descending triangle
- Symmetrical Triangle
- How can you use the trading triangle to plan your strategy?
- How does the negotiation triangle apply to different scenarios?
- Keep learning 🤓