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Trading Video: Triangles & Pennants on MT4

   

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One of the most important parts of technical analysis in trading is Chart Patterns. Perhaps the most reliable and easiest to trade of these are triangles and pennants.

These shapes all represent the battle between buyers and sellers and look like the compression of price like a giant spring.  Eventually, the pressure compressing the spring will give out and price will move.

There are 6 major patterns that we can look for:

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Bullish and Bearish Pennants are continuation patterns and generally leave in the same direction that they entered.

Descending and Ascending Triangles are, again, compression but here they are up against horizontal lines of support or resistance. They could leave in either direction.

Falling and Rising Wedges are also a pause and compression in the middle of a longer trend and are a very reliable pattern to trade.

These work on any time frame and here we have a 4 hour chart on Gold.

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Using our MT4 trend line graphic tool we can draw a lower trend line with obvious higher lows and then draw an upper trend line with lower highs.

We have drawn a Pennant with price compressing during one and a half months.

Suddenly price breaks through the lower trend line and crashes for almost 5 days.

This was a Bearish Pennant and, as we can see, it exited the pennant in the same direction that it entered.

The difference between this and a pennant is that one edge is a clear line of support.

We can see that price tried to break through four times and finally, on the fifth attempt, the pressure from sellers was too much and we had a serious breakout to the downside.

Keep in mind that, with this type of pattern, price action could go either way!

For example, here we have an Ascending Triangle.

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Price tried to break through resistance 4 times but buyers could not succeed even after all this compression.

This Ascending Triangle could also be considered a pennant on EURGBP 15 minute chart and, either way, price broke through the lower trend line and dropped to a previous level of support.

A few days later, a news event drove price up and another pattern formed: the Falling Wedge.

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The Falling Wedge is a Bullish Continuation Pattern and that is exactly what happened as price continued to rise.

These patterns work on any asset. Here is a pennant on the 4 hour chart for the S&P 500.

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Keep in mind that these are not always perfect patterns but as long as you can see lower highs and higher lows you will have price compression.

In this case it was true as the stock market crashed for 3 days after that. On the way back up it formed a double bottom which held true to form.  (We will talk about double bottoms in another video)

Then it formed an ascending triangle and, when price broke through this lower trend line, the S&P 500 fell again. You could actually consider this pattern as a rising wedge.  Either way, it did its job.

Bullish and Bearish Pennants are continuation patterns and generally leave in the same direction that they entered.

Descending and Ascending Triangles are, again, compression but here they are up against horizontal lines of support or resistance.  They could leave in either direction.

Falling and Rising Wedges are also a pause and compression in the middle of a longer trend and are a very reliable pattern to trade.

You can see the video here:

 

 

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Disclaimer:

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.

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