Channels and Triangles.

Channels

Another way to spot breakout opportunities is to draw trend channels.

Drawing trend channels is almost the same as drawing trend lines except that after you draw a trend line you have to add the other side.

Channels are useful because you can spot breakouts in either direction of the trend.

The approach is similar to how we approach trend lines in that we wait for the price to reach one of the channel lines and look at the indicators to help us make our decision.

Notice that the MACD was showing strong bearish momentum as EUR/USD broke below the lower line of the trend channel.

This would’ve been a good sign to go short!

Triangles

The third way you can spot breakout opportunities is by looking for triangles.

They formed triangles when the market price starts off volatile and began to consolidate into a tight range.

Our goal is to position ourselves when the market consolidates so that we can capture a move when a breakout occurs.

There are 3 types of triangles:

1. Ascending triangle
2. Descending triangle
3. Symmetrical triangle

Ascending Triangles

Ascending triangles form when there is a resistance level and the market price continues to make higher lows.

This is a sign that the bulls are slowly starting to gain momentum over the bears.

The story behind an ascending triangle is that each time the price reaches a certain high, there are several traders who are convinced about selling at that level, resulting in the price dropping back down.

On the other side, several traders believe the price should be higher, and as the price begins to drop, buy higher than its previous low.

The result is a struggle between the bulls and bears which ultimately converges into an ultimate showdown…

What we are looking for is a breakout to the upside since ascending triangles are generally bullish signals. When we see a breach of the resistance level the proper decision would be to go long.

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