# How to Trade Triangles (Breakouts)

Video Transcript:

Hello, traders. Welcome to the third module of the advanced technical analysis course, chart patterns. In this lesson, we are going to teach you how to trade a triangle. As you’ll remember on our previous lesson on triangles, we can find triangles as a continuation pattern or as a reversal pattern. We have three basic types of triangles and it really doesn’t matter which type of triangle we are trading or if we are trading a reversal or a continuation pattern or a continuation triangle. The basic setups are the same. In today’s lesson, we are going to look in-depth into one example and you can actually apply the same technique to all triangles you find on your charts.

Let’s start with these, triangles, entries, stop losses and targets. The way we trade triangles is on the breakout. A triangle is a consolidation pattern and you should avoid trade inside of it. The right way to trade a triangle is to wait for the breakout. The reason to avoid trading inside a triangle is because sometimes price will not go all of the way to the triangle’s support or resistance and can have a consolidation inside a triangle or it can be very choppy inside of it. Remember that as traders, we look for clean directional moves in order to profit and the way to profit from a triangle is to wait for the breakout.

Here is an example of a triangle. As you can see, price is inside this consolidation period and we are making lower highs and higher lows. We wait for the breakout of this pattern for us to be able to trade in the bullish side in this example.

And then the stop losses. Remember the stop loss levels are levels that will take us out automatically if price achieves that, because if the price goes against us, these levels are the levels where our trade idea is no longer valid and we should be out of a trade.

When we have a breakout in an entry, the stop loss should go below the triangle support in a bullish move. In a bearish move or a bearish breakout, the stop losses should go above the triangle’s resistance.

Here’s an example of where to put your stop losses. In this example, we have the triangle here and we have the breakout here. Our stop losses should go below this low, which is also the triangle’s support of the last low of the triangle’s support. If price goes against us, it would mean that this support area is now broken and our trade idea to the bullish side is no longer valid because we have broken with this structure.

Our targets. Our targets are easy to calculate. When calculating a triangle’s breakout target, you should measure the high from the low of the triangle. When you have the measurement in pips, you should extrapolate it to the breakout zone. Here’s an example of how to calculate the target area. In this example, we pick the high of the triangle with the low of the triangle. Remember that the high of the triangle is the first high and the low of the triangle is the first low. We just calculate this move in pips and extrapolate it to our possible breakout area.

We now have our target levels, our stop loss and our entry area. This is how a triangle breakout should be traded. Some people will take half of their position at this target zone and trail their stops to the next area of support to see if price will go higher, but if you are just trading the momentum of the breakout, you should definitely have a fixed target area like we are teaching you here.

Now let’s go through a trade analysis of a real triangle breakout in play. As you can see here, we are in an up move. We made what looks like to be an inverted hammer here, which means that we might be reversing in the short-term at this area of resistance. The case was this. We reversed to this low where we made a pin bar or what looks like a pin bar. Then we made a lower low, so we can assume that we are consolidating inside of a triangle because we are making a lower low. The triangle will be complete when we make a higher low or a flat low.

As you can see here, we are inside of a triangle after a move to the upside. We draw our lines so we can actually see the possible breakout area where we are going to begin to calculate our targets.

The first thing we’re going to do is we’re going to pick this high and this low to calculate the first move of the triangle. This is the actual move that we are going to calculate. In this case, we are in a 60 pip range. The next thing we’re going to do is we’re going to extrapolate these two, our possible breakout area which is here at the end of the triangle so we can calculate our targets at 60 pips. We wait for the breakout and when we have a breakout, we go long on this asset and we put our stop losses below this low, because if we break to the upside but then fail to go higher and break with this low, it would mean that the support line would be broken and our trade idea would be invalid.

This is how triangles should be traded, and it’s patterns that appear on a daily basis on any chart. If you are quick enough to grab 60 pips from a move then 50 pips from another and you focus on the momentum of these breakouts, you should have a really profitable strategy trading them the way we are teaching you to trade them.

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