08/08/2024

Triangle Pattern on the Smart Tape for Reversal Trading

How to Use the Triangle Pattern on the Smart Tape

The Smart Tape is a tool in the ATAS platform designed for analyzing recent trades. It features powerful functionality, including a speed indicator, filters, and other useful tools.

In this article, we will explore the triangle pattern that often forms on the Smart Tape, anticipating subsequent reversals.

Read more:

What Is the Smart Tape?
How to Set up the Historical Study Mode
How to Identify a Reversal Pattern. Examples
How to Trade, Basic Instructions
Pros and Cons of the Pattern
How to Start Trading Using the Strategy

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Disclaimer: This article aims to demonstrate the capabilities of the ATAS platform, the following descriptions of the ATAS Smart Tape patterns reflect the author’s perspective. The interpretation is based on personal experience and skills. The presented information may appear subjective and should not be considered as the only correct or exhaustive perspective.

The Smart Tape feature in the ATAS platform is a separate module designed for working with the flow of trades (referred to as Time and Sales). One of the main advantages of the ATAS Smart Tape is the aggregation of fragmented trades.

To open the Smart Tape, click the corresponding button (1) or use the context menu (2), as shown in the screenshot below.

We have chosen the E-mini S&P 500 futures market as an example. To filter out small trades that typically create distracting noise, we have set the Minimum Volume to 10 in the Smart Tape settings window.

You can see the main components of the indicator on the right side of the window:

Time – the time when the trade was made.
Price – the price of the trade.
+/- Direction – the price reaction (UpTick & DownTick) to the prices of the previous trades.
Avg – the average volume of the print in the trade.

Useful links:

To identify a reversal pattern, you need to open the price chart, activate the linked Smart Tape module from the context menu, and then switch to the historical view mode.

2. Setting up the historical mode in the Smart Tape

In the historical mode of the Smart Tape, you can select any area on the chart with your mouse (it will be highlighted in blue), and then the Smart Tape will display all the data only for that area.

A reversal pattern on the Smart Tape consists of 2 components:

a visually identifiable triangle in the uptick and downtick columns that presumably signifies the culmination of the preceding movement.
confirming prints that may indicate the beginning of a movement in the opposite direction.

It is important to remember that you should consider the overall market context when using the reversal pattern. You should also combine it with other indicators and analytical methods, especially those associated with identifying support and resistance levels.

Example 1. Stock Market Futures

In this example, we will use the ES futures chart. The blue area highlights a bearish reversal. What does the Smart Tape tape show?

In the Smart Tape module:

in black – a triangle that can indicate a potential culmination of the preceding upward price movement near the 5015 level.
in red – prints that confirm the emergence of sellers’ activity, indicating the start of a new downward impulse. The consecutive number of downticks and the average volume support this observation.

Let’s analyze another segment of the history. To do this, press ESC and select the reversal you are interested in. In the chart below, there is an upward reversal that occurred a little earlier, marking the beginning of a significant intraday rally.

The Smart Tape displays the same pattern but in a mirrored view:

in black – a triangle signaling the culmination of the downward price movement near the previous support level at 4990. Now we observe downticks in the triangle.
in green – prints confirming that buyers have become more active. The consecutive number of upticks and the average volume reinforce this observation.

Now let’s examine the futures on the DAX stock index. It is better to decrease the Minimum Volume value in a filter to a range between 3 and 6.

The example below confirms the significance of round psychological levels. Specifically, the contract price swiftly dropped below the 17000 level, exerting psychological pressure on those holding long positions. However, the price then confidently rebounded to levels from which the decline began.

5. FDAX chart and the Smart Tape readings

Considering today’s topic, we are particularly interested in the pattern on the Smart Tape, in fact, there are two of them. Both indicate a bullish reversal from the 16970 level. The blue highlight of the trades on the tape indicates that these trades did not occur at the Best Bid/Ask prices, which can often (but not always) be an additional confirmation of the reversal.

Next, there is a screenshot from the same market, but from the previous day. It focuses on a bearish reversal.

6. FDAX chart and the Smart Tape readings

The Smart Tape indicates that:

the triangle ‘broke down’ against the 17100 level,
this was followed by an activation of sellers.

Example 2. Futures on the Foreign Exchange Market

Data is sourced from the CME exchange, Euro futures. The Minimum Volume parameter in the tape filter is set to 6.

Above is an example of a bullish reversal from the 1.07850 level.

Below is an example of a bearish reversal in the same market from the 1.08000 psychological level.

The entire triangle did not fit into the screenshot because sellers did not become active immediately. However, the core principles remained unchanged.

Example 3. Futures on the Commodity Market

Let’s examine how the pattern works in commodity markets using gold prices. Data is sourced from the COMEX exchange, with a Minimum Volume set to 5.

Above is an example of a bearish reversal.

Below is an example of an attempt at a bullish reversal from the 2040 level.

10. GC chart and the Smart Tape readings

As time showed, the attempt proved unsuccessful and only led to a temporary halt in the downward trend.

1. Identify key levels and resistances.

2. Wait for the price to approach them.

3. Look at the Smart Tape, search for the triangle.

4. Enter the trade on the confirmation signal.

5. Set a stop outside the level at which the triangle formation ended. You can set your take profit based on mathematical calculations or market context.

Feel free to adjust your approach based on your risk tolerance, personal circumstances, and initial market conditions.

Like any trading approach, the ‘triangle on the Smart Tape’ pattern has its pros and cons.

Pros

It is easy to understand and interpret.
It is well-suited for selecting entry and exit points.
It can be combined with other approaches, especially with support and resistance levels.
Trading in sync with market dynamics. The pattern suggests buying when selling pressure has exhausted, potentially leading to a new rally. You buy based on facts, anticipating that your long position will be at the beginning of increased demand.
It does not lag. It is not redrawn. The pattern is formed based on raw exchange data.

Cons

Not all patterns work. Even if you believe you’ve identified a perfect pattern, a reversal may not occur.
Patterns depend on quote providers. On historical data, the Smart Tape captures all trades for display, so the pattern appears attractive. In real time, when trade data comes in one after another, the pattern may not form as clearly.
It is not suitable for all markets. For example, the Smart Tape exhibits excessively volatile behavior on Binance exchange futures. When switching from market to market, you will probably need to adjust Smart Tape settings.
Risk of overtrading. The pattern can form near minor support and resistance levels. Close monitoring of the Smart Tape is associated with additional workload and is suitable only for patient traders able to maintain concentration.
It is not suitable for everyone. Swing traders and position traders are less likely to find the pattern appealing compared to scalpers and day traders.

Evaluate the pros and cons. Consider how to incorporate this Smart Tape pattern into your comprehensive trading approach.

First of all, you need to download and install the ATAS platform. Learn how to configure the Smart Tape. After this:

Study the behavior of the pattern. Use various historical market stages, spikes, and volatility drops. Enable getting real-time quotes and, if possible, compare data from different providers.
Try Market Replay — a market simulator that enables you to replay historical data as if trading was happening in real time. This way, you can practice identifying patterns and trading using various strategies, including those based on the Smart Tape. Analyze trading statistics and eliminate errors.
Enhance your chances. Try gaining more advantages over other traders by using footprint charts. Or non-standard timeframes. Or professional indicators like DOM Levels, Big Trades, Volume Profile, and others.
Keep learning. Our blog, YouTube channel, and ATAS Knowledge Base provide detailed instructions on setting up the platform and using its features for market analysis and trading. Additionally, platform users can count on responsive support from ATAS.

Do not risk real money until you have gathered enough evidence to prove your readiness.

Conclusions

The Smart Tape is a powerful tool that can significantly enhance the effectiveness of your intraday trading strategy. The ‘triangle on the tape’ pattern will help you more accurately identify entry points, especially from important support and resistance levels.

If you have not tried using the Smart Tape module yet, we strongly recommend getting acquainted with it. Download ATAS. It is free. Once you install the platform, you will automatically get the free START plan, which includes cryptocurrency trading and basic features. You can use this plan for as long as you like before deciding to upgrade to a more advanced plan for additional ATAS tools. You can also activate the Free Trial at any time, giving you 14 days of full access to all the platform’s features. This trial allows you to explore the benefits of higher-tier plans and make a well-informed decision about purchasing.

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Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform.