- 9 лет ago
- Published в: Last winner ethereum
- 1
- Автор: Moogucage
The falling market meets a sudden buying interest, and a struggle begins, where sellers appear to be stronger. They gradually suppress the price increase and often force the market back into the downtrend. Finally, the symmetrical triangle consists of two converging trendlines and is generally considered to be an indecisive pattern.
As Adam H. For a little background, we love to make different trading strategies. Creating a system that would have beaten the market in the past is an intellectual challenge on its own. Add in the possibility of future gains, and you have a hobby worth pursuing. After spending countless hours backtesting various ideas, we noticed that triangle patterns occur quite frequently.
Not only that, but it was apparent that they would often have allowed us to catch significant trends. Seeing that, triangles seemed worth exploring. Using this step-by-step method , we quickly put together a forex triangle pattern strategy. That said, it was kind of expected. After all, this strategy was just a result of a quick brainstorm. We exported the data from this initial backtest into an Excel file and began looking for certain relationships.
Backtesting this improved strategy on different price data, did, in fact, produce amazing results. But not too fast! Instead of merely throwing a strategy to your face, we will explain the process of making this strategy. The First Version of The Strategy We already mentioned that the reason we became interested in triangles is that they seemed to be a good fit for a trend trading system.
Since we wanted to trade as frequently as possible not always a good idea , we decided to make a day trading strategy that catches intraday trends. This was the idea in a nutshell: Identify support and resistance zones on the minute chart. Then, go to the 1-minute chart and look for impulse moves that penetrate these zones. Keep waiting until the price consolidates and a triangle pattern emerges.
Finally, enter the market when the price breaks out of the triangle in the direction of the trend. Learning from Backtesting and Improving the Strategy To derive insights from the backtesting results, we exported the data into an Excel file and conducted a few simple calculations. For example, if your stop is set at 10 pips and your take profit is set at 30 pips, the RRR would be , or simply 3. Remember, our rule was a minimum RRR of , but most trades had a higher ratio in practice.
Thus, including the RRR in the analysis helped see its impact on profits, especially when investigated in combination with screenshots that were taken of each trade. This number appeared to show the best results. In trades with a higher RRR, the trend often reversed just before reaching the profit target. Trades with lower ratios did not increase the win-rate enough to offset the effect of smaller gains. Instead, we used our judgement. During backtesting, we took a screenshot of each trade.
At this stage, we looked at these screenshots and identified where each trade should have been set into breakeven if, hypothetically, we did set trades into breakeven. In a nutshell, the optimal BEP is at the smallest percentage of the profit target TP where we could have set the trade into breakeven and held the trade for the longest time possible thereafter before eventually reaching the profit target or being stopped out.
The bulk of the work is done in trying to identify these patterns. Once they are detected, they can be traded with the strategy that we shall describe below. There are two wedge patterns: the rising wedge and the falling wedge. The wedge patterns are made up of converging trend lines, which either slant upwards in the case of the rising wedge, or slope downwards for the falling wedge.
The price action is expected to breakout in the direction opposite that of the wedge. This strategy aims to identify the breakout point, and to set appropriate entries and exit points for trades. The chart pattern recognition indicator is used to identify the chart patterns as they occur.
Several indicators are available online. Go for the paid ones. Autochartist offers a good version and is sold on a monthly subscription basis. The color-coded MACD indicator is used to confirm the decision to enter. A blue indicator mark is used to confirm entry for the falling wedge, and a red indicator mark does the same for the rising wedge. The Breakout The determination of the breakout is the key for this strategy.
Breakout occurs when the price action breaks through a trend line and closes beyond it. A candle that moves both below the lower trend line and closes below it, forms a rising wedge breakout. The candle must move above the upper trend line of a falling wedge and close above it for a breakout to occur.
If price action merely breaches the trend line and heads back to where it came from, it cannot be deemed a breakout. On many occasions, you can allow the next candle to attempt to pull back below the upper trend line in a falling wedge, or above the lower trend line in a rising wedge.
The broken trend lines usually resist this movement, which allows trading closer to the trend line for more precise entries, leading to a lower drawdown. Short Entry The short trade is reserved for the rising wedge.
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A group of traders may independently decide that they will sell the fx pair when the price reaches a certain target. If that target becomes lower and lower, because sellers come in at lower and lower prices, the top line of the triangle will point downwards. At the same time, there may be a group of traders who may decide that the price offers value at a certain minimum.
When the price reaches that minimum, they come in as buyers, underpinning the lowest price. If the lower price gets higher because there are traders that are prepared to come in as buyers at an increasing higher price, the bottom line will point upwards. It represents two views on the same situation The two lines converge because there are two motivations active in the market.
Traders on either side of the triangle hold their views based on why there are trading the pair. It could range from a need for a currency because of an increase in demand for whatever reason, to amateur traders thinking they know what the market is going to do. The two lines converge in a triangle. It has to break out of the triangle in one of three directions. The price can break upwards, downwards or sideways. In the expectation phase, the price waits for something to happen in the market to give it a push in some direction.
Triangle patterns are popular because they are so easy to spot, have a good risk to reward potential and provide clear price objectives. Expectation: The expected break-out distance is the same as the length of the vertical axis of the triangle. So, if the vertical axis equals 50 pips, the expected distance between the point of break-out of the triangle to the target price, is expected to also be 50 pips. The stop-loss distance can be anything that makes sense to the trader, but many traders use either the price at the opposite triangle line plus X pips plus spread pips, or the price on the other side of the break-out candle plus X pips plus spread pips.
The nearer it happens to the intersection of the ascending and descending lines apex , the better the chance that it will range move sideways after breakout. Some traders try for an additional edge by only trading break-outs in the direction of the previous momentum. On many occasions, you can allow the next candle to attempt to pull back below the upper trend line in a falling wedge, or above the lower trend line in a rising wedge. The broken trend lines usually resist this movement, which allows trading closer to the trend line for more precise entries, leading to a lower drawdown.
Short Entry The short trade is reserved for the rising wedge. Here, the trend lines slant upwards. The lower trend line shows a greater degree of slant than the upper trend line. The aim is to catch the breakout when the MACD histogram is red and trade accordingly. You should allow the price to pull back to the broken trend line before entering the trade. Short entry setup on rising wedge We can see that the price action broke below the lower trend line, and then the price pulled back to the lower trend line thus forming a pin bar.
The stop loss is set a few pips above the broken trend line. Take Profit is set at an appropriate level that should be at least 3 times the stop loss. Long Trade The long trade is used with the falling wedge.
Here trend lines that slope downwards identify the wedge. The upper trend line forms a greater slope angle than the lower trend line. The key is to watch for the breakout candle, then allow the next candle to open with a pull back. Then enter long trade close to the broken trend line if the MACD histogram is blue. You can see it in the chart below. The post-pattern price action lasted for about 5 days and closed to pips.
We see that the price action broke above the upper trend line. On the next candle, the price pulled back to this trend line with the blue MACD, shaping a great entry point for the long trade. Hope you can make a few pips out of this.
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