Symmetrical Triangle Pattern: Definition, Trading Strategies & Examples
Open a new position when the price returns to the previous Resistance or Support zone. Just reverse the process and open a Short Position when the price touches the Upper Trendline (slanted downward) for the third time. In some cases, you will find that it may be very hard to distinguish between the two patterns. Even though these methods of deciding where to place to stop loss may be popular, do remember that they might not work everywhere.
- A triangle pattern is a formation that appears when price movements converge into a triangular shape, defined by higher lows and lower highs.
- It can be drawn simply by connecting the swing high/low with two sloping lines that will converge at some point in the future, making the break inevitable.
- Symmetrical triangles and expanding triangles (a.k.a. broadening triangle, megaphone formation, broadening formation) are similar but develop in the opposite direction.
- The measured move target (projecting the height of the triangle from the breakout point) serves as a useful guideline rather than an exact science.
- Stop-loss is usually placed slightly below the breakout level to account for market fluctuations.
Can RSI be used to trade together with the symmetrical triangle pattern?
This symmetrical triangle breakout signifies that there is a possibility of an up move how to trade symmetrical triangle in the stock in the near future with a fresh bullish pattern. The pattern itself doesn’t predict direction – only that a significant move is likely. An upside breakout suggests bullish momentum; a downside breakout points to bearish sentiment.
Plan your trading
As with most technical analyses, symmetrical triangle patterns work best with other indicators and chart patterns. Traders often look for a high-volume move to confirm a breakout and may use different technical indicators to determine how long the breakout might last. For example, the relative strength index (RSI) may be used to determine when a security has become overbought following a breakout.
Support
- Luckily there are some predetermined rules that apply to triangle patterns specifically.
- Descending triangles indicate bearish trends and are traded by selling on breakout below support.
- This is the requirement we need in order to confirm this pattern on the chart.
- In a real symmetrical triangle on a piece of paper, the two sides need to be equally long.
- As a result, price action becomes progressively narrower, forming a triangle shape with each successive high being lower and each successive low being higher.
As the symmetrical triangle provides buy and sell signals, a trader waits for a symmetrical triangle breakout of either trendline. Let’s remember that, more often, this setup appears ahead of the trend continuation. Therefore, it’s more likely the upper boundary will be broken in an uptrend and a lower boundary will be broken in a downtrend.
The triangle pattern works efficiently when the converging trend lines have appropriate angles to confirm the pattern’s validity in technical analysis. The triangle patterns in trading are less reliable when the angles are too steep. The triangle patterns do not form precise triangles when the angles are too shallow, making it difficult to interpret market signals. For instance, in a bullish triangle pattern, the lower trendline slopes upward, indicating increasing demand, while the upper trendline remains flat, suggesting resistance. The triangle pattern’s advantages include clear entry and exit points and the ability to identify trend continuations or reversals.
Triangle patterns are popular because they provide traders with clear visual signals of potential price breakouts during periods of market consolidation. The symmetrical triangle pattern, identified by converging trend lines, signifies a period of consolidation and market equilibrium. This pattern is neutral and could break out in either direction, making it essential for traders to watch closely for a decisive breakout accompanied by increased volume. A triangle pattern works by forming between two converging trend lines with at least two touch points on each side to define valid support and resistance levels. The triangle chart pattern’s shape requires appropriate trendline angles, not too steep or shallow.
…There was no immediate direction change but the price underwent resistance and formed a pivot point there (price peak). The target achieves when the price touches the Trendline drawn from the highest peak of the pattern. A pullback is when the price does a return move to the breakout price level or some extent. …Open a Buy or Sell position based on your anticipated direction of the upcoming breakout. When the breakout is imminent there tends to be a lot of Buy & Sell Stop Orders above and below the Highs & Lows of the triangle.
As with most chart patterns, volume confirmation is key when trading triangles. A breakout without sufficient volume may indicate a lack of conviction and increase the risk of a false breakout. Ensure that the breakout is accompanied by a significant increase in volume to validate the move. Triangle patterns typically form as continuation patterns, meaning that they signal a brief consolidation before the price continues in the direction of the prevailing trend. Before trading these patterns, ensure that the market has been trending either upward or downward, depending on whether you are trading an ascending or descending triangle. During the formation of the triangle, volume tends to decline as the price narrows within the pattern.