In technical analysis, a symmetrical triangle is a tool that traders use to forecast a price direction. It’s a bilateral pattern, meaning it provides buy and sell signals. In this FXOpen article, we will try to explain how to read the symmetrical triangle.
The take profit for the breakout or breakdown for a symmetrical triangle pattern is equal to the distance from the high and low of the earliest part of the pattern applied to the breakout price point. A great trading tool for identifying breakouts is a volume indicator. Real breakouts usually occur during high trading volumes and high volatility. The fake breakouts come up during low volumes and they look more like a range rather than a breakout. This way, traders get tempted that there is a breakout on the chart. The bullish pennant is similar to a symmetrical triangle in appearance, but the Bullish pennant formation comes after a price increase.
how to trade symmetrical triangles provide little, if any indication as to which direction the stock will ultimately breakout. A symmetrical triangle is a chart pattern characterized by two converging trendlines connecting a series of sequential peaks and troughs. Breakout from this pattern can be either upwards or downwards, with great volume accompanying it. The Symmetrical Triangle trading strategy is one of the most efficient ways of trading consolidations because the triangle pattern generally occurs during ranging periods. Traders may open a position as soon as the breakout candlestick closes or wait for several candles to be formed in the breakout direction. The choice depends on a trader’s experience and willingness to take risks.
We will hold the trade until the price moves with a size equal to the size of the triangle. If the trend continues, we will hold the other 50% until the price breaks another swing point on the chart. In the EUR/GBP 30-min chart below, we can see how the two converging trend lines are formed following a bearish trend and eventually connect. When this happens, traders look for the price level at which both trend lines intersect, which serves as a breakout level. Here, in this article, we are going to explain everything you need to know about the symmetrical triangle chart pattern.
The advantage of the first option is that you can’t miss out on a trade, as you are in as soon as the candle closes above/below the trend line. However, the close may occur far away from the trend line, which means that your take profit window has narrowed, while the amount of pips you are risking has increased. Join thousands of traders who choose a mobile-first broker for trading the markets. Deepen your knowledge of technical analysis indicators and hone your skills as a trader. You have a contracting triangle on the chart when the tops and the bottoms of the price action are moving toward each other. When the descending triangle is created during a bearish price tendency, we expect the trend to continue.
Symmetrical Triangle Breakout Chart Example
The symmetrical triangle chart pattern is a trend continuation pattern to either a bullish trend or a bearish trend depending on the breakout or breakdown of prices out of the triangle pattern. Here are key rules you should keep in mind when trading this pattern. Just as it is with other forms of technical analysis, symmetrical triangle patterns work best together with other chart patterns and technical indicators. Traders often look for a high volume move as confirmation of a breakout. They may use other technical indicators to determine how long the breakout might last.
There are some methods you can employ to differentiate between false and true breakouts. Harmonic patterns are used in technical analysis that traders use to find trend reversals. Now we have the other half of the trade open in order to catch a potential continuation of the bearish trend. However, with the next candle, the BA price closes a dark cloud cover candle pattern, which is shown in the blue square on the chart. Many technicians believe that if a stock is rallying prior to a symmetrical triangle, the stock will eventually breakout to the upside. Conversely if a stock is falling prior to a symmetrical triangle forming, the stock should continue lower.
Symmetrical Triangle Breakout
In the EUR/GBP 30 minute chart above, we can see the price consolidation phase following a bullish movement. The price action trades sideways with lower highs and higher lows and eventually, the two converging trend lines meet. Market factors such as volume of demand for a particular asset or cryptocurrency may play a big role in determining breakout angles of a symmetrical triangle pattern formation. A price consolidation triangle chart pattern may present trade opportunities if a breakout successfully occurs on either side of the triangle chart pattern formation.
- Above you see a classical example of a symmetrical triangle on a chart.
- Even at this point, the direction of the breakout was still a guess and it was prudent to wait.
- If the price after point 4 rises to point 2, we can open a buy position.
- As you have probably guessed, the bearish pennant is the mirror image of the bullish pennant.
When an ascending triangle is formed during a bullish trend, we expect a continuation of the trend. Commodity and historical index data provided by Pinnacle Data Corporation. The information provided by StockCharts.com, Inc. is not investment advice.
Now that you know what the rising and the falling wedges look like, we should share one more detail regarding these formations. Typically the more powerful wedge formation is the potential trend reversal formation which occurs after a prolonged trend move. As a symmetrical triangle expands and the trading range shrinks, volume should start to decline.
Triangles offer particular entry and exit points, which can be used directly or with little corrections according to a trader’s approach. The red square marks the ideal breakout time-span from 50% to 75% of the pattern. The breakout occurred a little over 2 weeks later, but proved valid nonetheless. While it is preferable to have an ideal pattern develop, it is quite rare for that to occur. After the gap up from point 3 to point 4, volume slowed over the next few months.
In the chart above, you can see that the buyers are starting to gain strength because they are making higher lows. For example, three touches of the support line and two for the resistance line. Find the approximate amount of currency units to buy or sell so you can control your maximum risk per position. Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner.
Often times people will place pending orders above and below the Symmetrical pattern in anticipation of a breakout chart pattern; this is a trap and is one of the reasons the false breakout happens. We treat this breakout with caution, which is why we wait for price confirmation in the form of the breakout candle closing above the Symmetrical triangle pattern. The Symmetrical trading strategy will help you increase your account balance quite rapidly. You simply have to employ this step-by-step guide on triangle trading to make sure you’re correctly reading the information given by the classical Symmetrical Triangle Geometry Pattern. This triangle pattern can appear throughout any market and its popularity is notable with all types of traders who trade on any time frame. The estimated target price of a symmetrical triangle is the distance of the widest part of the triangle added to the breakout level.
Moreover, we will be sharing a basic symmetrical triangle pattern trading strategy. While decreasing, the price action actually creates a bearish pennant. This is the consolidation after the first impulse of the bearish trend. On the way down we see the price completing the first target, which equals the size of the pennant .
The perhaps most common method used to combat false breakouts is adding some distance to the breakout level you’re watching. That way you allow the market some room for the random price fluctuations that often trigger breakout systems to go long or short, and could avoid a lot of losing trades. An ascending triangle is a type of triangle chart pattern that occurs when there is a resistance level and a slope of higher lows. It is comprised of price fluctuations where each swing high or swing low is smaller than its predecessor.
Finally, the sellers are able to push the price action below the triangle as two converging lines almost touched. In this example, the symmetrical triangle acts like a continuation pattern that simply helps to extend the downtrend further lower. Hence, we make a difference between the bullish symmetrical triangle pattern and a bearish symmetrical triangle pattern.
- If the higher timeframe is in an uptrend, then chances are, the symmetrical triangle would breakout higher.
- Since trading patterns try to quantify the movements of the market, they also tell us a lot about market psychology and may give us a glimpse into the prevailing market sentiment.
- She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.
- The triangle consists of two sloping trendlines – the upper line connects at least two lower highs, while the lower line goes through at least two higher lows.
Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide https://g-markets.net/ of accounting, corporate finance, taxes, lending, and personal finance areas. However, in some cases, the support line will be too strong, and the price will bounce off of it and make a strong move up.
The Symmetrical Triangle Chart Pattern indicates an ongoing period of price consolidation before the prices breakout. In an uptrend, price action finds the first resistance , which will be the highest high in the pattern. An expanding triangle consists of a series of swings that widen as price moves.