How a tapering triangle work

By 19/07/2021News

Gold  1812,645

EURUSD   1,1807

DJIA  34420,50

OIL.WTI  70,80

DAX   15488,50

The euro/dollar pair has not attracted our attention for a long time. It has been trading in a narrow 6 figure wide corridor since the beginning of 2021. Breakout traders have lost a lot of money trying to find a new trend. Is it worth trying something different?



Above is a daily chart of the Euro/Dollar pair. It shows a descending tapering channel which turns into a triangle. What does the theory of technical analysis tell us?
– Decreasing volatility leads to a tapering triangle. We can see that indeed the swing amplitude of the Euro/Dollar pair has decreased dramatically
– An exit from the triangle is possible in either direction. But it is more likely that the movement will occur in the direction of the triangle. That is downwards.
– After a breakout of the triangle, volatility is more likely to increase. And it means that traders have a great opportunity to enter with a small stop and high profit potential.
But what awaits us in practice? In practice we should pay attention not only to TA figure, but also to its nuances. It is the nuances that can give an additional advantage when entering the trade.
What are we talking about in this case? As you remember, we made a bold prediction at the beginning of the year. Most analysts were expecting strong moves in one direction or the other for the euro/dollar pair in 2021. We suggested that if everyone is expecting the same thing, then the angry market will do the opposite. Namely, it might trade in a narrow range all year. That is exactly what has been happening for almost 7 months now.
So, if our logic is correct, a breakout of the lower boundary of the triangle could be a big trap for the bears. Technically speaking, they would be right. However, the breakout point would be near or even below the low of the 2021 trading range. And that could be the most powerful factor to push the price up, with the first target of 1.20.
But what if it happens the other way round? We can’t predict the future. But we don’t need to. Observance of the money management allows the trader not to worry about any developments. Therefore, let’s keep an eye on this triangle, the borders of which may be broken through as early as this week.

No market-moving news on Monday

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.