What are Bilateral Chart Patterns?
Bilateral chart patterns in the foreign exchange market, refer to patterns that indicate that the price of a currency can move in either direction. This means that the price could continue to move in the direction of the current trend, or it could potentially reverse and move against the trend. This uncertainty can make it difficult for traders to make decisions about when to enter or exit trades.
However, traders can still use these types of patterns to their advantage by hedging their risk. This means that they will place both buy and sell orders at the resistance lines indicated on the chart. This way, if the price moves in the direction that the trader expects, they will profit from the trade. But if the price moves in the opposite direction, they will still have the other trade to offset any potential losses.
Instead of performing a market trade, the trader will perform two separate order trades. One of these trades will be a sell transaction, where the trader is expecting the price to fall, and the other will be a buy transaction, where the trader is expecting the price to rise. This way, the trader is able to take advantage of both potential price movements and minimize their risk.
Types of Bilateral Chart Patterns
1. Ascending Triangle
An ascending triangle pattern is a commonly observed trend in financial markets, particularly in Forex trading. It is characterized by a horizontal resistance line and an upward sloping support line, which indicates that buyers are becoming increasingly active and pushing the price upward but are unable to break through a certain price level, known as the resistance level. This resistance level is considered to be quite strong and is usually determined by the highest price point that buyers have been able to achieve.
The upward sloping support line represents a sequence of higher lows, which indicates that buyers are gradually gaining momentum and pushing the price upward but are unable to break through the resistance level. As time goes on, buyers may eventually overcome sellers, leading to a breakout in price, but the direction of the breakout is uncertain. This is why traders need to be prepared for a breakout in either direction or place entry orders accordingly. For example, they could place a buy order above the resistance line and a sell order below the support line.
The majority of the cases examined, the breakout happens at the tip of the triangle and will usually occur in an upward direction, but not always. In some cases, sellers may overcome buyers, which means that the breakout in prices actually drops. This would be the perfect time to put in a sell entry order.
2. Descending Triangle
When it comes to forex charts, descending triangles are the opposite of ascending triangles. They are characterized by a series of decreasing highs that form a descending resistance line and a horizontal support line. This means that traders should anticipate a potential breakout in price in either direction and should place a buy order above the resistance line and a sell order below the support line. Once the breakout happens, traders should cancel the order that is not on the same side of the breakout.
In contrast to ascending triangles, which suggest that buyers are in control and prices are likely to stay low, descending triangles indicate that sellers are driving the market and dictating prices. As seen in the chart below, this pattern suggests that sellers are likely to dictate the price and a breakout is expected to happen at the tip of the triangle, although it is more likely to occur in a downward direction, but not always.
3. Symmetrical Triangle Chart
The symmetrical triangle pattern on a forex chart is characterized by a convergence of a downward sloping resistance line and an upward sloping support line towards a single point at the tip of the triangle. This pattern forms when neither buyers nor sellers are able to gain a significant advantage and dictate the direction of prices, leading to a period of consolidation.
Traders should be prepared for a breakout in either direction and place both a buy order above the resistance line and a sell order below the support line. Once the breakout occurs, they should cancel the order that is not on the side of the breakout. As the direction of breakout is uncertain when the two lines converge, traders are advised to place stop entry orders both just below and above the slopes to manage the risk.
Bilateral Chart Patterns Pros & Cons
- They indicate a period of consolidation, which can provide a clear entry or exit point for a trade.
- They can be used to identify potential price breakout levels.
- They can be used in combination with other technical indicators or analysis to increase the accuracy of trade predictions.
- The exact direction of breakout is uncertain, making it harder to predict the outcome of a trade.
- They can be subject to false breakouts, which can lead to losses if not managed properly.
- The trading range is constantly narrowing, making it difficult to identify the best entry point for a trade.
It is not advisable to engage in trading while the price is still within the “Triangle” pattern as the trading range is constantly narrowing and the direction of breakout cannot be determined until the last moment. It is better to wait for the price to leave the consolidation phase and enter a trade at the time of the breakout. If the price breaks above the upper edge of the pattern, it is a good opportunity to open a long position, and if it breaks below the lower edge, a short position could be opened.
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