3 Bar Triangle Breakout

The 3 Bar Triangle Breakout indicator identifies potential breakout opportunities by detecting specific tightening price action where two consecutive bars are contained within the range of a preceding third bar. This tool aims to signal momentum shifts when the price finally breaks the established range after a period of contraction.

Usage

The indicator can be used to identify trend continuation or reversal setups following a period of consolidation. A "BB" (Breakout) label appears on the chart when the following criteria are met:

• Setup: Two consecutive bars have highs lower than the high of the third bar back, and lows higher than the low of that same third bar.
• Execution: A breakout occurs when the current bar closes above the highs (for long) or below the lows (for short) of the preceding contraction bars.

Traders often use these signals to anticipate high-momentum moves that typically occur within 2-3 bars after the triangle formation is confirmed.

Details

The 3 Bar Triangle Breakout is based on the concept of price compression leading to expansion. By looking back three bars, the script establishes a benchmark range (Bar 3). It then verifies if Bar 2 and Bar 1 are "Inside Bars" relative to that benchmark. This creates a triangle-like structure on shorter lookbacks. The final trigger requires the current candle to close outside the previous candle's range and maintain a directional bias (closing higher than the open for longs, or lower for shorts).

Settings

• Indicator Overlay: The script is designed to run directly on the price chart to provide clear visual entry signals.
• Alerts: Includes built-in alert functionality for both Long and Short entry conditions, triggered upon bar close.

FAQ

How do I interpret the "BB" labels?

The "BB" labels represent a "3 Bar Breakout." An upward green arrow indicates a bullish breakout, while a downward red arrow indicates a bearish breakout.

On which timeframes does this work best?

The 3 Bar Triangle Breakout is versatile and can be applied to any timeframe, though it is commonly used on daily charts to identify "inside day" breakouts or on lower timeframes for scalping momentum.

How can I access 3 Bar Triangle Breakout?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.