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How to trade chart patterns (Part 6)

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As we know, one of premise of technical analysis is history repeats itseilf. In other words, human behavior tends not to change. Then technical analysts study chart patterns, which reveal the psychology of the market. Chart patterns worked well in the past. They are assumed to work well in the future. Hence, the future is predictable. In this topic, we will define chart patterns and how to trade based on those patterns.

Ascending triangle


An ascending triangle is a continuation pattern. Lower trendline is connected between rising lows, which represents the demand. The highs form at the top line. These highs do not have to reach the same point but should be close to each other, which represens the supply. Buyers may not able to break through the supply line at first and they may take some corrections before establishing new higher supports. When price breaks through the top line of the triangle, new buyes step in and sellers surrender. The price will go up an amount equivalent to the base of the triangle.

Descending triangle


This pattern is a continuation pattern. Upper line is connected between lower highs, which represents the supply. The lows form at the bottom line. These lows should be close to each other, which represents the demand. When price breaks down support line, new sellers step in and buyers surrender. The price will go down further an amount equivalent to the base of the triangle.

Trading triangle pattern


The example below describes how to trade a descending triangle pattern. A sell order should be placed below the key support pattern1.6000