Good day to all colleagues in the trading workshop and readers of my blog! Today we will talk about graphic shapes. More precisely – what is “Magic” of the triangle, the geometric shape that most traders hunt for. Initially, the entire advertising campaign for attracting future customers is based on a simplified trading scheme. That is, a simple moment is told when it is possible to make a good profit. The simplest method of making money, according to advertising companies, is trading by geometric shapes. That is, everything is simple, the market works according to established patterns. And, in order to earn, the client only needs to make a deposit and find the “Triangle”. There is nothing difficult for a common man in the street. You look for a “triangle” and you earn money. But is it really so?
Interests of buyers and sellers
The market is always an arena for buyers and sellers. If the interests of buyers prevail, then the price tends to go up. And when there are more sellers, the price will tend to go down. If the situation is on a “small” market, then the issue is resolved very quickly. Whoever wanted, he bought, and whoever wanted, he sold. And if we are talking about the interbank market? All the same, only on a slightly larger scale. If some international bank wants to conduct a transaction, then it will conduct it, relying on the quotes in force at the moment. The outcome of the deal will depend on the number of players in the market at the moment. If the volume of the transaction is large enough, the player will hide his intentions. Injecting a lot of money will move the price. And this is not beneficial to someone who wants to make a deal of a solid size.
When the price moves up, the price “freezes” at a certain price point. Several attempts to overcome the “barrier” end in vain. This suggests that the price has encountered a resistance level. That is, someone thinks that the price is attractive at the moment in order to sell the asset. Those who think so are selling assets. The price falls down. Any upward movement ends in the area of resistance. The price cannot overcome some kind of barrier.
But, with a recreated situation, the price does not tend to fall. That is, the interest of all market participants is in a narrow range. For some, the price is in the desired range. The lower the price value, the more profitable the deal for interested participants. But with all this, someone is trying to redeem the asset. The price cannot go below a certain level, since all offers are immediately redeemed.
Breakout of the border of the triangle
Trend lines that outline the price movement characterize the current price trend. If the trend is stronger than the expectations of market players, the price breaks the boundaries of the chart patterns. The triangle shape can be compared to a compressible spring. The range of price fluctuations is getting narrower. This suggests that the interests of buyers and sellers are becoming very close. And at one point, the balance of power can be upset. It is in this case that the breakdown of the triangle occurs.
Where are we going to “rush”?
Every trader asks himself this question. Someone is looking for patterns of price behavior on the historical part of the chart. And someone carefully studies economic and political news in order to understand in which direction the price will go. But with sufficient accuracy, no one can predict the price movement. There are times when the price breaks out of the triangle in one direction, and then sharply reverses in the opposite direction. You need to have a clear algorithm of actions for any development of events in the market.
April 14, 2021