Symmetrical Triangles Trading

Overview

Symmetrical Triangles patterns are continuation patterns that generally mark a pause in the preceding trend. It’s identified as having two converging trendlines that take the shape of a sideways triangle. This pattern can mean the market has simply gotten ahead of itself and it needs to consolidate or it truly is in a period of indecision and is looking for direction. Attempts to push higher are met by selling and attempts to push lower are met with buying. Each new lower high and higher low becomes shallower than the last. Volume will usually diminish during this period as well. Eventually, the symmetrical triangle resolves itself and often with an explosive breakout in the direction of the preceding trend.

Symmetrical Triangles in Uptrends / Bullish The majority of the time, a Symmetrical Triangle in an uptrend will breakout to the upside. A high volume breakout is more reliable than a low volume breakout. Symmetrical Triangles in Downtrends / Bearish Symmetrical Triangles in downtrends will typically breakout to the downside. However, an increase in volume is not required for a successful breakout. In fact, a significant increase in volume might be considered suspect. Although, volume should start to increase as the downside move continues. Identifying and Drawing Symmetrical Triangles

Triangles are usually quite easy to see on a chart. Especially when the lines have already been drawn in. To identify a Symmetrical Triangle pattern on your own, remember that it has to have at least four points: two points at the top to draw the downward slanting trendline and two points at the bottom to draw the upward slanting trendline. Connecting the high point and the subsequent lower high forms the top part of the triangle. Connecting the low and the subsequent higher low forms the bottom part of the triangle. Symmetrical Triangles in uptrends are bullish, while Symmetrical Triangles in downtrends are bearish.  

For a bullish Symmetrical Triangle pattern, the first point (the point farthest left, i.e., the earliest point) is at the top. For a bearish pattern, the first point is at the bottom. A triangle can have more than four points. The image to the right has six. Measured Moves (Minimum Profit Targets) To determine your projected minimum profit target, measure the distance between points 1 and 2. This is the widest part of the triangle and is often referred to as the base. For example: if the top of the base (point 1) was $56 and the bottom of the base (point 2) was $50, the base would be $6. This is your measured move. To project your minimum profit target, identify at what price the stock broke thru the triangle. For this example, let’s say $54. Then add $6 to the breakout price of $54 and you have you minimum projected profit target of $60. (See image.) 

Failures and Stop-Out Points There are different failure points based on how you enter the trade. If you enter the trade after a breakout, you should use a move below the apex point as your failure point and exit the trade. (The image below depicts a Symmetrical Triangle in an uptrend for illustration.)  

If you get in before a breakout occurs in anticipation of one, a move below the last point of the triangle (e.g., point 4 in a four pointed triangle or point 6 in a six pointed triangle, etc.) should be your failure point and you should consider exiting the trade. (The image to the right depicts a Symmetrical Triangle in an uptrend for illustration.) For the more experienced chart pattern trader, you might choose to stay in a little longer if you believe the pattern is being ‘re-drawn’ into a new pattern such as a larger triangle, or a bullish flag or even a wedge. This can makes sense if your early entry was near the bottom of the pattern and staying in a little longer still keeps your risk within your level of tolerance.  

Summary The use of the word ‘Symmetrical’ in describing the Triangle is used loosely and is more of a way of distinguishing it from an Ascending Triangle and Descending Triangle. The Symmetrical Triangle doesn’t have to be symmetrical per se’, but as stated earlier, it does have to have two converging trendlines -- the top line slanting downward and the bottom line slanting upward so that they eventually come together to form a right sided triangle. Since this pattern is a continuation pattern, it’s most profitable to trade this in the direction of the preceding trend. You can get in after a breakout has occurred or you can choose to get in early in anticipation of a breakout taking place. Either way, pay attention to the volume and your failure points and the Symmetrical Triangle will become a trusted pattern in your trading.