Trading Symmetric Triangle Patterns
by Suri Duddella
Triangle patterns form when price reaches support and resistance levels in consolidation ranges . The triangle patterns can be either bullish or bearish as they also can be continuous or reversal patterns , based on the market trend . These patterns are primarily are classified as Ascending , Descending and Symmetric Triangles . In this article , we ’ ll present how to trade Symmetric Triangles .
Symmetric Triangle is one of the most important chart patterns in technical analysis . These chart patterns form when the market is in an indecision mode where supply / demand is in a state of equilibrium . Even though it is hard to predict ( up or downside ) the price breakout from this consolidating pattern , they are generally considered to be continuous patterns and breaks out in the established trend direction prior to the pattern formation . Once the price breaks out of the pattern , they usually result in a large move in the direction of the breakout . Symmetric Triangles are also called as " coils " or " contracting wedge " patterns .
Symmetric Triangles can be easily detected when prices make alternate lower highs and higher lows in upside and downside slopes were defining a clear symmetry . Symmetric Triangle patterns consist of two converging upward sloping ( lower ) and downward sloping ( upper ) trendlines connecting the lower-high pivots and higher low pivots bounding the pattern . The trend before the pattern usually signals the breakout direction from the pattern signifying a continuation pattern . The pattern consists of at least 2 price pivotal points on each of the upper and lower trendlines . Once price breaks out from either of the trendlines , the pattern is considered complete . Volume decreases within the pattern and increases at the point of breakout . Prices usually break out one side or other before reaching the ' Apex ' of the triangle and may form weeks to months for it to be valid before a breakout . The optimal breakout point occurs between 50 % -75 % of the pattern width . Symmetric Triangles often produce " throwbacks " where price retraces back to the trendline .
Some traders look for these " throwbacks " for potential entry points .
Trading Symmetric Triangle Patterns
Trade :
Trades should be taken when price closes out of upper or lower trend line in a Symmetric Triangle after forming at least 2 pivots on each of the trendline . The optimal breakout point should be about 50 % to 75 % of the width from left . When a breakout is confirmed by price closing above breakout bar ' s high ( in the case of upside ) enter a long trade . When a breakdown is confirmed by price closing below the breakdown bars low , enter a short trade . Some traders employ a 2 % higher price level above breakout or 2 % lower price level below breakdown to qualify a ' true ' breakout .
Stop :
Symmetric Triangle failures occur when market results in false breakouts . Stop below the last pivot level ( 4 ) of the trend line for a long setup and place a “ stop ” order above the high of the trend line for a short-setup . In large Symmetric Triangle patterns , an aggressive stop level could be placed at the " apex " level .
Target :
Symmetric Triangle targets are computed by adding the height of the entire triangle from breakout level in an upside triangle breakout . Protect targets by using trail stops .
Example