Symmetrical Triangle Pattern
In this article
According to the chart pattern analysis, a symmetrical triangle pattern is formed when the price moves sideways. Two parallel trend lines converge until the intersection point, considered a neutral pattern.
We will analyse how can you trade with the symmetrical triangle pattern. This article will look at what the traders understand through the symmetrical triangle and its trend. We will also share a basic trading strategy centred around symmetrical triangle patterns.
Symmetrical triangle definition
There are many different triangle chart patterns, but the most common is the symmetrical triangle. It is composed of swing highs and swing lows smaller than the previous one.
It creates a symmetrical triangle in the form of a spiralling price movement. The trading activity decreases while a symmetrical triangle forms until the apex appears.
Whenever a stock rallies before forming a symmetrical triangle, many technicians believe it will eventually break out to the upside. In contrast, if a stock is falling before forming a symmetrical triangle, it should continue declining.
The assumptions are both incorrect. A symmetrical triangle provides a slight indication about which direction a stock will ultimately break out. From the above definition, the symmetrical triangle is characterised by a lack of volume and price movement, creating a coiling pattern and making it difficult to predict the breakout direction.
The structure of the pattern
Symmetrical triangle formations are neutral chart formations. Market highs and lows move towards one another as two converging lines move towards it. The likelihood of a substantial breakout increases as the space between converging lines becomes narrower.
The distance between the two trend lines in a triangle is the longest at the beginning. To trade sideways for a certain amount of time, energy from both sides builds up.
This consolidation phase is what causes breakouts and downturns followed by solid volumes because many traders are on the sidelines waiting to see what direction the market will take.
A broken symmetrical triangle is more likely to break in the overall trend direction as a neutral pattern. Whenever a triangle forms after an uptrend, there is a greater chance of the triangle breaking.
A symmetrical triangle may be bullish or bearish, depending on its symmetry. The bullish symmetrical triangle appears when the prevailing trend is upward, and the bearish symmetrical triangle appears when the prevailing trend is downward.
A symmetrical triangle in such a situation can then be considered, as the triangle itself is simply the form of a temporary pause within an overall upward or downward trend.
There are a lot of factors that make a perfectly symmetrical triangle challenging to find. Almost always, one trend line tends to lean more than the other. Because of this, it is best to pay attention to the message communicated by the market rather than attempting to identify every perfectly symmetrical triangle.
What does the symmetrical triangle show us?
According to this triangle, the market is uncertain about the direction of price action shortly. Additionally, the market is not moving in any particular direction since the lows and highs are higher. Therefore, it may seem as if the market is more inclined to continue in the direction of the current trend.
Expert traders stay out of the market as long as the market is consolidating until there is a high probability of a breakout or downturn. To ensure that we are not dealing with a failed breakout, we must always wait until the price leaves and closes outside the triangle.
The best method for using symmetrical triangle patterns with technical indicators and chart formations is to use them together with other chart formations and indicators. Therefore, experienced traders rely on volume to confirm a breakout or decline.
Things to know about symmetrical triangle pattern
The symmetrical triangle chart pattern signals a consolidation period before the price breaks out or breaks down. A new bearish trend emerges when the lower trendline breaks, while a new bullish trend emerges when the upper trendline breaks. This is known as a wedge pattern.
Applied to a breakout price point, the distance between the high and low of the earliest part of the pattern will determine the price target for a breakout or breakdown. For example, a symmetrical triangle pattern might start at $10, move up to $15, and then narrow. In the event that $12 breaks out, the price target is $17, or $15 – $10 = $5, then + $12 = $17.
Typically, the stop-loss is set just below the breakout point of the symmetrical triangle pattern. A stop-loss can often be placed below $12 on high volume if the security above breaks out from $12.
A symmetrical triangle differs from an ascending triangle and a descending triangle in that both upper and lower trendlines point to the centre point. Alternatively, ascending triangles have a horizontal upper trendline, signalling the possibility of a breakout higher, while descending triangles have a horizontal lower trendline, signalling the possibility of a breakdown lower. Pennants and flags also have similar symmetrical triangles; however, pennants have upward sloping trend lines instead of converging ones.
In symmetrical triangle patterns, as in most technical analyses, it is best to use them with other chart patterns and indicators. For example, traders usually use volume as a technical indicator for determining how long a breakout will last and may use other indicators to determine its duration. RSI can be used, for instance, to identify when a security has become oversold following a breakout.
Trading the symmetrical triangle pattern
As soon as we identify a symmetrical triangle pattern on a chart, we await a breakout or a breakdown. There are typically two ways to enter trade breakouts and downtrends. The first time to enter the market is as soon as the candle closes above or below the triangle on a high time frame chart.
You can also wait for the price action to break out of the triangle to retest the broken trend line. The advantage of this option is that you get to enter the trade precisely at the retest, which gives you a better chance of success. On the other hand, it has a limitation in that you may not be able to place a trade since retests are not guaranteed.
You cannot miss out on a trade with the first option since you are already in if the candle closes above or below the trend line. However, a close may occur far away from the trend line, meaning that your take profit window has gotten smaller while the pips you are risking are going up.
Setting a realistic target for your symmetrical triangle trade
It would help if you used each chart pattern to determine your trade target. Because chart patterns have targets, everything a trader needs to know is in these patterns.
Remember that your minimum target size should equal the size of the chart pattern when you are trading chart patterns. It would help if you always viewed chart formations. It would help if you always viewed chart formations with this rule in mind as you trade.
Taking the shorter side of a symmetrical triangle and extending it by the same amount as the longer side determines the triangle’s scale. If you go after the price movement of the third side of the triangle (which is missing), you will see the scale at which the price will move.
Protecting your trade with a wise stop loss
Make sure you know how much you are willing to risk before placing any trade. Do not take the trade if it requires you to take more risk than planned. Instead, take a much better trade.
It is advisable to place a stop loss below the opposite side of the breakout when trading symmetrical triangles. This is because the point at which you want to stop is inclined, so the farther to the left you move, the greater the distance between the stop and entry price.
Applying a few simple price action rules can help you stop a trade. First, look at the price movement around the symmetrical triangle. Then, put your stop below the lower level of the triangle, under the larger price bottom, if you notice a bullish breakout. Nevertheless, a bearish breakout would require the stop loss to fall above the upper level of the triangle.
Difference between the symmetrical triangle with other triangles
A symmetrical triangle differs from an ascending triangle or a descending triangle in that the lower and upper trend lines slope towards one another.
Contrary to that, ascending triangles have a horizontal upper trend line, which predicts a potential breakout higher, while descending triangles have a horizontal lower trend line, which predicts a potential breakdown lower. Similar to flags and pennants, symmetrical triangles exhibit upward sloping trend lines instead of converging lines.
A symmetrical triangle pattern usually works best with other chart patterns and technical indicators, as it does with other forms of technical analysis. The high volume moves often serve as confirmation of an impending breakout. Other technical indicators will determine how long the breakout will last.
In the case of the relative strength index (RSI), you can use it to determine when a security has become overbought following a breakout. As a trading strategy, Symmetrical Triangles are one of the most effective ways to trade consolidations because the triangle pattern typically appears during ranging periods.
What does the symmetrical triangle tell traders?
Triangle chart patterns are the most popular chart patterns. Price forms a symmetrical triangle by making every swing high or low smaller than the previous one. They are creating a symmetrical triangle out of this spiralling price movement. During a symmetrical triangle’s formation, trading activity decreases along the way until reaching the apex.
Most analysts believe that if a stock rallies before forming a symmetrical triangle, it will eventually break higher. The other option is to continue the decline if a symmetrical triangle does not form. Unfortunately, the assumptions are both incorrect.
It is difficult to determine which direction the stock will eventually break out from these triangles. It’s important to remember that a coiling pattern results from a lack of volume and price movement. As a result, a symmetrical triangle cannot predict which direction it will inevitably break.
- What is a symmetrical triangle in trading?
As the price moves sideways, the symmetrical triangle appears as a consolidation pattern on the chart. However, it is considered a neutral pattern because two trend lines converge until the intersection point.
- Is a symmetrical triangle pattern bullish?
Bullish symmetrical triangles must form before bullish movement. Therefore, the previous movement must be bullish for the triangle to form. On the other hand, a bearish symmetrical triangle is an example of a continuation chart pattern that is bearish, so the movement preceding the formation of the triangle must be bearish.
- Is an asymmetrical triangle a reversal pattern?
Even though symmetrical triangles tend to appear as continuation patterns, they can act as reversal patterns in some situations.
In a symmetrical triangle, the angle divides into equal degrees by a diagonal line that passes through the rightmost edge. A symmetrical triangle does not have a clear breakout direction. It is therefore essential to distinguish a fake breakout from a real breakout.
A volume indicator is an excellent tool for identifying the real breakout. Actual breakouts typically occur during periods of high volume trading. The breakout is unlikely to hold during low volume periods and may reverse.
Every symmetrical triangle must have a minimum target that is the same size as the triangle itself. It would help if you extended the shorter level so that it is the same length as the other level to define the size of the triangle. Following the breakout of the triangle, the price is likely to reach the potential size between the ends of the two levels.
A symmetrical triangle breakout is an entry signal that stops below the opposite of the breakout level. The stop should likewise match one of the tops/bottoms on the level. Once the minimum target has been met, only close 50% of the trade to get a further price movement on your side if no further price rise occurs.
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