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Trading the Jam way

  #119 (permalink)

Juno Beach
 
Trading Experience: Advanced
Platform: Ninja and TS
Broker/Data: Optimus Futures / Matt
Favorite Futures: multiple
 
JamTheTrader's Avatar
 
Posts: 135 since Sep 2009

Triangles

Triangles are one of the most common price patterns that you will see on your chart. They are not as reliable in general as a head and shoulders pattern but if you have proper trade management they can make for good trades. Triangles can be classified as reversal or consolidation patterns and start out with a wide range that tightens up until the final break out usually from 2/3 to 3/4 of the way through. You will have a trend line on top and one on the bottom, each of which needs to touch at least 2 points in order to be valid. The more times the lines are hit, the more significant the break. When prices go beyond 3/4 of the way through be aware that you may instead be heading into a sideways consolidation pattern.

There are two types of triangles;
Symmetrical Triangle
Right Angle Triangle

In the Example below you can see the formation of a Symmetrical Triangle. You will normally see volume decrease as the pattern shrinks to the right until a breakout occurs to which volume should increase significantly. If volume does not rise, you may be looking at a failed break out or a consolidation period beyond the triangle that is still very much intact. It is very difficult to know with the symmetrical triangle which way the pattern is going to break until it actually does, for this reason the trader should not assume and instead wait until the breakout and then look for a low risk setup to enter the trade. Remember that this is a battle of buyers and sellers that needs to play out and both are very even handed in a triangle pattern. In the beginning both buyers and sellers are very much out of control as prices swing in larger ranges. As price contracts forming the triangle the buyers and sellers are gaining composure and waiting for the other to make a move. When the hand is tipped, you can plan your trade.

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In the example below you will see the second type of triangle, the right angled triangle. This is a special form of triangle that, unlike the symmetrical triangle, can give the trader an idea which way prices may break. While prices can break either way, the pattern on the left is a bearish pattern and the one on the right bullish.

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