What happens during triangles formation ?

Below is my reply at Forexfactory.com

Originally Posted by SeekingLight

How many of these have you seen and traded before and how certain are you of pattern probability and direction?
What are your triggers and possible endpoints / projected targets?

What does the formation mean in itself?

Triangles are psychological.

If the previous trend is bullish

1) the upper side (bearish) shows a selling (profit-taking). Selling lower and lower because traders are afraid if the price never return to the last maxima.

e.g : Oh crap... price is going down. 1800 is the highest, I'll sell at 1780 when it comes back there).

2) the lower side (bullish) shows people (who previously took profit or missed the last rally) are buying the dips, they are buying higher and higher because they are afraid of missing the move.

e.g : Oh crap again.... 1600 seems like a support, it 1650 now .. I'll buy limit at 1620

Trade Status

The trailing stop at 1.3630 got hit and 30 pips of profit is secured. Price dropped further down to 1.3600 and triggered my buy limit order before bouncing up again. 1.3600 seems like a strong support.

Trades Status - Taking Profit

I closed the position bought at 1.3400 for 260 pips profit. I'm looking forward to enter another position at 1.3700. 1.3690 is a resistance that needs to be breached for Fiber to have a strong breakout.

Trades Status

I had closed the last two positions (bought at 1.3500 and 1.3600) at 1.3660 to secure the profits because it looked like the bull was out of steam (see the prices between the 2 yellow lines, it's a rounding top formation).

After that, I placed a pending buy order at 1.3600 and so far the trade is working fine. This is what we call buying the dips.

Trades Status on Monday

Trades are working fine. I wonder what will happen by Tuesday. Will it break the level 1.3700?
I bet it would.

Trades Status

Here's the current standings of the trades. Now, we are really going somewhere. :-)
Is the Fiber on it's way to 1.4000 now?

Trade Status

Trades are working even better. I've moved the stop losses up. The first position is now my long-term position. I'm aiming for around 300-400 pips profit (100-150 pips stop loss) with this position and the second position is the short term position with tight 50 pips stop loss.

I will enter another position if the price hit 1.3525.

Trade Status

Trades are working good. Perhaps the US subprime mortgage anxiety has come to an end?

Trades Status

The last trades were gone. Lost some money again. Here's the current Fiber position bought at 1.3400 and Cable bought at 1.3800-ish.

Trades Update

Here's the current positions that I have. The last 2 trades were stopped out at break-even. Hopefully, these two new trades will make some money. Let's what will we have on Monday.

Trades status

Here's the current standings. Cable position got stopped out.
Possibly Fiber is truly on it's way to 1.3400?

Cheers.

Cable update

The Cable moved up just a little bit on Friday despite the Fiber's bull leap. It's currently under a strong bull phase and I'm looking forward to 2.06 very soon.

Fiber update

The Fiber suddenly went up and hit the 1.3800 on Friday. I have good feelings for the pair to go even higher next week. 1.3650 is indeed the lowest support for the retracement from 1.3850. The big players are already placing their new long positions. Let's ride the wave for the next 1-2 weeks. :-)

Anyway, these are my current positions.