EUR/USD – Triangle Pattern Trade

Volatility in the EUR/USD has fallen off and the pair has created a triangle pattern on the daily chart. The following analysis shows traders how to trade a breakout of the consolidation pattern including predefined levels for limits and stop orders.

Looking at the daily chart for the EUR/USD, an ascending triangle pattern has formed. The upper boundary begins at the height of the uptrend at 1.4157 and the lower boundary begins at the mid-October low of 1.3697. Multiple points of contact have been made with the boundary lines with the most recent coming today during the morning hours of the European trading session.

As the previous trend is up, we should expect the pair to break to the upside. A breakout higher from an ascending triangle pattern typically performs better than a breakout to the downside.

However, this rule is not set in stone and the trade can also be played in the opposite direction should the pair break below the lower boundary.

Finding a price target for the triangle pattern is relatively easy. Traders should measure the distance of the base of the triangle, approximately 450 pips. Therefore, a limit order can be placed roughly 450 pips from the price where the pair moves above or below the boundary lines.

Traders will want to be patient and wait for confirmation that the price has broken outside of the boundary lines before opening a position in any one direction. Trading inside the triangle has its risks and is not recommended.

To protect against a false breakout traders should include a protective stop. A stop to the downside can be placed below the support level at 1.3800. A stop to the upside can be placed above the resistance level of 1.4000.