Symmetrical Triangle Forex
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As its name implies, the Symmetrical Triangle Forex is part of the Triangle family of charts. This candlestick chart pattern makes it easy to identify Forex traders, and it is possible to trade such patterns successfully.
In addition, the candle chart pattern frequently occurs, which is an integral part of technical analysis. Patterns such as this are continuation patterns, and their location during a trend provides a Bullish or Bearish market outlook.
A Symmetrical Triangle forms due to a price consolidation within a current trend. It is common for buyers to book partial profits or exit entirely after entering the initial phase of the trend. The triangle breakout attracts more investors and further drives up the stock price by offering a new buying opportunity.
Price experiences a series of lower lows and higher highs during the consolidation phase. In essence, the formation is a Symmetrical Triangle chart pattern that is easy to identify. The Symmetrical Triangle pattern appears throughout all daily, weekly, and monthly chart patterns, including intraday chart patterns. Thus, any Forex trader can profit from this pattern.
Symmetrical triangles explained
In a Symmetrical triangle chart pattern, prices consolidate before they break out or break down. The breakdown of the lower trendline signals the beginning of a bearish trend, while the breakthrough from the upper trendline signals the beginning of a bullish trend. In other words, it is called a wedge chart pattern.
The upper and lower trendlines of symmetrical triangles are both sloping towards a centre point instead of ascending triangles and descending triangles. This is because the ascending triangle trendline predicts the breakout of the triangle higher, while the descending triangle trendline predicts the breakdown of the triangle lower. Flags and symmetrical triangles also have upward sloping trendlines instead of converging trendlines, while pennants have downward sloping trendlines.
Similarly to other technical indicators and chart patterns, Symmetrical Triangle patterns perform best when combined with other technical indicators. Traders often use technical indicators to determine how long a breakout might last, such as measuring movement volume to confirm a breakout. Following a breakout, it is possible to determine whether security has become overbought by interpreting the relative strength index (RSI).
A triangle chart pattern called an ascending triangle occurs when a resistance level is present along with a slope of higher lows.
A certain level occurs during this time that buyers cannot seem to surpass. However, the price is gradually rising, as shown by the higher lows.
You can see from the chart above how buyers are making higher lows, which indicates they are gaining strength. This means they continue to put pressure on the resistance level, eventually leading to a breakout.
Now the question is, “How will it develop?”? Are the buyers going to be able to break the resistance level, or will the resistance be too strong?” Several charting books tell you that the buyers usually win this battle, and the price breaks out past the resistance.
We have noticed, however, that this does not always occur. There are times when the resistance level is too high, and there is not enough purchasing power to overcome it.
There’s a good chance that the price will go up most of the time. In other words, you don’t have to be obsessed with which direction the market moves, but you should be prepared for movement either way. To enter the order with an upper limit above the resistance line and a lower limit below the slope of the higher lows.
Buyers lost this fight, and the price subsequently dropped! The drop was approximately the same height as the triangle shape’s height. Depending on how we set our short order, we might have been able to catch some pips off the dive.
It should not surprise you that descending triangles are the reverse of ascending triangles. Typically, descending triangle charts have an upper line formed by lower highs. The lower line forms a support level that the price seems unable to breach.
Using the chart above, it is possible to see the price gradually decrease, which indicates that the sellers are beginning to gain some ground against the buyers. However, in most cases, and we say most times, the price will eventually break out of the support line and continue falling.
It’s possible, however, that a support line could be too strong, and the price could bounce off and move upward. Fortunately, we aren’t concerned with where the price goes. Our only concern is that it’s about to rise. Hence, we would place the entry order above the upper line (the lower highs) and below the support line.
This time, the price broke out above the top of the triangle pattern. It surged higher after the upside breakout, about the same distance vertically as the triangle’s height. With an entry order made above the triangle’s peak and a target of the height of the formation, excellent profits were possible.
Psychology of symmetrical triangle pattern
You will read about the psychology of price formation in the psychology section. It is impossible to trade a pattern either bullishly or bearishly without understanding the actual logic. However, you can trade with solid logic by reading the price.
Why does a symmetrical price pattern form?
This is a sign of indecision regarding price. The price is trying to decide which direction to go. The market makers decide which way the price will go, whether it will go up or down. So Symmetrical Triangle patterns indicate market makers are determining the market’s direction. Depending on the breakout, the market direction becomes clear.
- A break of the upper trend line in a symmetrical pattern will indicate a bullish price trend. A bullish price direction has emerged after lengthy deliberations by market makers.
- If the lower trendline of the Symmetrical Triangle pattern breaks, then the price will begin a downward trend. In other words, institutional traders decided to take a bearish price direction after making their decision.
The formation of this chart pattern is due to this factor. Reading the price will allow you to make better trading decisions.
How to identify a Symmetrical Triangle?
This candlestick chart pattern has a Symmetrical Triangle shape implied in the name. Several components make up this pattern:
Depending on the previous trend, there are two kinds of Symmetrical Triangle chart patterns: a Bullish Symmetrical Triangle candle pattern or a Bearish Symmetrical Triangle candle pattern. The pattern must appear during a Bullish breakout for the trader to enter an uptrend.
Similarly, if the same pattern occurs during a downtrend, the Forex trader will look for an entry point to sell if there is a bearish price breakout.
For the Forex trader to identify the symmetrical triangle type, predict the breakout direction, and trade it profitably, they must consider the existing trend. Therefore, the price consolidation is consistent with the idea that the market is ready to continue the rally after consolidation.
2. Trend lines or triangle shape
Triangles form when the upper trend line and the lower trend line intersect to form one. Ideally, both trend lines should slope equally to converge; thus, the slope should also be symmetrical. In the event of non-equal slopes, other types of triangles and wedges form, such as ascending triangles, descending triangles, falling wedges, and rising wedges. To identify a Symmetrical Triangle chart pattern, the distinctive shape is vital.
As a result of connecting the highs and lows of the consolidation period, the upper and lower trend lines appear. A higher low should be able to touch the upper trend line at least twice. In addition, the price should have responded to the lower trendline at least twice before the higher lows. These are the rules for creating a valid trendline.
3. Breakout location
Forex traders rely heavily on the breakout location of the triangle to validate the breakout. The best time to enter the market is after the pattern has matured and the new funds are ready to enter. Breakouts should occur after the pattern is 75% complete. Any breakout before then should be invalidated.
If the price breaks out too quickly after the triangle forms, it should be invalidated as the price has to break the triangle at some point at the end. An unprompted market reaction may have resulted from a casual movement in the market rather than buying or selling pressure.
Types of Symmetrical Triangles
In terms of their context, symmetrical triangles either fall into Bullish symmetrical triangles or Bearish symmetrical triangles.
1. Bullish Symmetrical Triangle
A bullish Symmetrical Triangle can appear in the above image. After the consolidation phase, the current uptrend indicates the market will move higher, so the trader would be wise to consider buying the market at this point. Similar slope angles occur on both trend lines and convergence at the end.
There was at least one reaction to the upper trend line and a reaction to the lower trend line. The price continued its initial course as soon as it broke out.
2. Bearish Symmetrical Triangle
As shown in the above image, bearish symmetrical triangles are forming. A downtrend occurred during the pattern formation. A reaction to the upper and lower trend lines occurred twice, with the slopes of the upper and lower trend lines almost equal. After the breakout, the price continued to trend in the same direction.
How to trade the Symmetrical Triangle?
The trading of a breakout pattern is relatively straightforward once it is confirmed. Following these guidelines can be helpful:
As soon as the breakout confirmation occurs, the entry is in the direction of the initial trend. Traders should avoid entering the market when the price breakouts in another direction.
Confirmation of the breakout is crucial to a practical trade. Therefore, traders should use trend line break out rules to confirm the triangle breakout. In addition, traders can use technical indicators to confirm the breakout. Increased trading volumes generally accompany a breakout, so traders can confirm a breakout using technical analysis.
2. Stop loss
Placing a stop loss above or below the opposite trend line is helpful based on the breakout direction. However, a price break of the other trend line will invalidate the trend, effectively breaking both trend lines. As a consequence, holding onto the trade may no longer make sense.
3. Take profit
There is no best take profit unless the distance between the upper and lower trend lines is the longest. The distance between the trend lines is maximum at the beginning of a pattern. This distance is measured and projected to determine the potential profit from the entry point. For advanced traders, however, you can utilise trend-following rules.
Best working conditions for the Symmetrical Triangle pattern
To increase the odds of winning in a trade, filter the best working conditions before trading. For this chart pattern, a few conditions are ideal.
- At critical levels, Symmetrical Triangle shapes should appear. An example is the formation of critical shapes. A bullish or symmetrical pattern should form at the support or demand zone. Meanwhile, a bearish breakout should occur at the resistance or supply zone.
- In a price chart, it will appear at the top or bottom. Similarly, the formation of a symmetrical pattern during overbought or oversold conditions increases the chances of winning.
- During sideways price movement, this chart pattern is ineffective. However, during trending conditions, it is most effective.
- What is the best timeframe to trade Symmetrical Triangle patterns?
They are suitable for all timeframes. However, we recommend you trade timeframes above 15M. Due to the high trading frequency in lower timeframes, it will become challenging to identify false breakouts below 15-minutes.
- Is the Symmetrical Triangle pattern a continuation or a chart pattern?
Because of the symmetrical price behaviour, the breakout of the chart pattern will determine whether this chart pattern is a continuation chart pattern or a reversal chart.
You should study the Symmetrical Triangle chart pattern to forecast the market’s future direction. Moreover, it will provide information about the price or asset conditions.
To trade price action, it is essential to read the price. Logic is essential. Profitable trading is what you will achieve. First, backtest the strategy with confluence before adding it.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst