Understanding the Concept of Continuation Triangles When Predicting Crypto Prices
Financial and crypto markets are some of the greatest investment options of our time, but they are probably the most complex. Even expert traders often make mistakes that lead them to losses, and the losses are always increased due to the market volatilities.
However, some traders have garnered the expertise of understanding the market charts, the supports, resistance, and breakouts. Often, some use tools designed to help understand the market, and one of those indicators is the continuation patterns.
As the name suggests, continuation patterns often predict a continuity in price trends after the breakouts. Therefore, when used with a skilled investor, the continuation patterns can help predict prices.
This guide is going to focus on a small group of continuation patterns, the triangles. There are three triangle patterns labeled based on their trend, ascending, descending, and symmetrical. Please keep reading to find out how it can identify these triangles and use them in price prediction.
An ascending triangle is when the resistance line is flat/horizontal, while the support line is sloping upwards. Generally, the highest prices remain constant, but the lowest prices are increasing.
The viability of an ascending triangle is seen only if the trend continues, and both the resistance and support lines touch two or more points. Often, the ascending triangle signifies the possibility of price continuations or, in some special instances, reversals after a breakout.
According to various experts, ascending triangles are a good tool for predicting future stock prices and crypto assets. Generally, the location of these triangles on the chart may help predict the future of the prices.
If, for instance, the ascending triangle continuity appears when the price is plunging, right at the bottom of the downtrend, it could be an indication that the downtrend is ending. If the triangle appears at the center, it may mean further plummets.
To identify the triangle, here are some things you may notice;
- Rising lower trendline(support line)
- Flat upper trendline(resistance line)
- Four weeks period to 3 months
Often this triangle forms when there are continuous uptrends in the market, but it may be sometimes hard to notice the trend.
The descending triangle is primarily formed when there are downtrends in trading charts. The descending trend occurs when the resistance line is sloping downwards and the support level is flat. The support is the demand that protects the asset’s prices from plunging below a certain point, while the resistance is the highest price that the asset is striving to go past.
The prices surge up and fall, but after every fall, the peak price continually reduces, such that the height in the markets continually reduces. As the prices lower, the volumes often follow recede; however, the good thing is breakouts can happen even at shallow volumes.
Like in ascending, descending triangles may form in weeks and last up to 3 months. The volume in descending triangle patterns always recedes as the triangle/pattern continually forms.
The descending triangle is relatively easy to identify in a downtrend, and there is a clear target which is the height of the triangle. To certify that a particular trend is a descending triangle, there must be a clear high-low move pattern.
Depending on the position of these particular trends, they may lead to substantial gains for the traders. When considering the right time to trade such triangles, it’s advised that you invest during the upward breakout since it may lead to high gains. However, there may be false breakouts, or prices may stagnate and move sideways for longer than expected.
The third type of market chart triangle is the symmetrical triangle. This triangle has both the resistance and support levels lines converging to meet. Its resistance line is sloping downward, while the support is sloping upwards from the bottom.
According to various experts, symmetrical triangles in market charts show that the market lacks a particular stand or direction. The supply and demand are almost the same. The trading volumes often diminish in symmetrical triangle patterns.
In such markets, since the lows and highs seem to be converging towards each other, it may be impossible for investors to know where to invest. Moreover, it’s impossible to predict the direction of a breakout if it has not yet happened.
However, some agree that symmetrical triangles may signify the possibility of a trend reversal from the preceding market trend. To confirm the break out once it occurs, it must be of significant value, i.e., 3%, or must continue for several days.
Predicting Prices Using Continuation Triangles
In the ascending and descending trends, it’s possible to easily predict where the breakouts will happen and the possible directions of the breakouts. However, in the third symmetrical triangle, predicting the breakouts is not possible. Therefore you have to wait until it’s clear where the breakout is leading.
Once you know the resistance, then the prediction of a future price is easy following these steps;
- Take the highest height of your triangle. This height is seen from the first appearance of the triangle, the difference between the resistance and support at the start of the triangle formulation.
- Once you get the triangle height and the value it represents, add it to the breakout price.
- The value you get after the summation should be your predicted price in case of an uptrend.
- If the breakout was a downtrend, you need to subtract the height of the triangle.
Although a complex theorem, continuation triangles are a good way to understand the market trends and make investment decisions that may lead to profits.
The concept of continuation patterns is healthy, especially when predicting the prices of crypto assets. Knowing the trend before the indicators may help know where the breakouts will be. Moreover, you need to identify the triangle type (ascending, descending, and symmetrical), which will help you understand the market’s future. However, symmetrical triangles are quite unpredictable.
When it comes to forecasting, the maximum triangle height can give a picture of what the prices will be after the breakout. However, you need to beware of a false breakout since you may fall into losses.
Understand how continuation triangles work can help an investor know the right investing time.