A triangle is a chart pattern, in which buyers and sellers clash. It is generally considered a continuation pattern, because it marks the continuation of an existing trend. This means that when prices break out of the pattern, they are heading in the direction of the main trend that prevailed before the appearance of the pattern.
This post was inspired by a free-to-download chart patterns PDF by personal finance website TrustedBrokers.com. The PDF reviews 20 essential chart patterns that every trader should master. These include continuation patterns, reversal patterns as well as neutral patterns. It also includes links to interactive charts, to help you place every pattern in its broader context.
Characteristics of a symmetrical triangle
The symmetrical triangle, which is one of the three types of triangles, along with the ascending triangle and the descending triangle, is composed of two converging lines surrounding prices that form lower highs, and higher lows.
The first line represents a bearish slant connecting highs and forms a line of resistance, while the second represents a bullish slant connecting troughs to form a line of support.
Here are a few things to consider when assessing a symmetrical triangle pattern:
- The primary trend: since the symmetrical triangle is considered a continuation pattern, it is important to spot the existence of a clear trend before the consolidation phase.
- The slope of the lines: it is also necessary to consider the position of the peaks and troughs in relation to each other and the slope of the lines. The 2nd vertex must be lower than the 1st to form a downward sloping line of resistance. The 2nd trough must be higher than the 1st to form an upward sloping support line.
- Touch points: for a symmetrical triangle to be validated, at least 4 contact points are needed: 2 to form the resistance line and 2 to form the support line.
- Volume: when the symmetrical triangle expands, trading activity decreases in the face of investor uncertainty. Thus, the trading volume is relatively low during the consolidation phase before accelerating when the pattern is released.
- The breakout: the moment when prices break out of the symmetrical triangle should ideally be between half and ¾ of the development of the triangle.
How to trade a symmetrical triangle
After price swings without real direction between the two converging lines that form a symmetrical triangle, buyers and sellers regain control of the market to push prices in the direction of the prevailing trend.
However, price will eventually cross one of the trendlines acting as resistance / support and accelerate a move up / down in prices. Many traders wait for the breakout to occur before taking a long or short position.
It’s usually a good idea to wait for a confirmed breakout in either direction before opening a position. Some traders will wait for two daily closes above or below resistance or support. Others may instead prefer to wait for the pattern to unfold on a weekly chart.
It is not uncommon for prices to return to the breakout level after breaking out of the symmetrical triangle. Some traders call this a “return to the scene of the crime”. The second way to take a position to trade a symmetrical triangle is therefore to take advantage of this pull-back to enter the market. However, the pull-back is not systematic and you could miss an opportunity if it does not happen.