In the last article, you learned about the reversal patterns - ascending and descending triangles. Now we’ll talk about symmetrical triangles.
This figure is not that simple. It forms on both bullish and bearish trends. The breakout and further price movement can occur in any direction. The symmetrical triangle is formed more often than the descending and ascending ones. Therefore, you should know how to trade it.
Figure Formation
The triangle type has the highest level of uncertainty. The strength of bulls and bears is practically equal. Because of this, the price begins to fluctuate in the corridor and its amplitude gradually narrows.
The sides of the triangle are built on at least three highs and lows. The top edge serves as a resistance line. The bottom edge becomes support.
Trading Strategy
Although this triangle type is a neutral pattern and a breakout can occur in any direction, a chance for a reversal is much lower. This is why most traders expect a breakout to the upside on a bullish trend and a breakdown to the downside on a bearish trend.
Some traders prefer to place pending orders in both directions in order to use every trading opportunity. If the sides of the triangle are shifted during its formation you should adjust your pending orders accordingly.
You need to open a trade in the direction of the breakout:
- Long position when the resistance is broken upwards
- Short position when support is broken down
Symmetrical Triangle
- Bullish trend
- Bearish trend
- Highs
- Lows
- Support
- Resistance
- Breakout point - buy signal
- Breakout point - sell signal
The exit point for a trade can be determined in two ways:
- Measure the base of the triangle and plot the same distance from the breakout to the exit point.
- Draw a line parallel to the resistance on a downward breakout and parallel to the support on an upward breakout. The beginning of the line is the lower or upper point at the base of the triangle, respectively. The drawn line is the minimum distance that the price should pass.
Exit Points of the Symmetrical Triangle
- Resistance
- Breakout to the downside
- Lower base point
- Target line for a sell trade
- Support
- Breakout to the upside
- Upper base point
- Target line for a buy trade
Useful Tips
- Trading within a triangle is extremely dangerous. Volatility constantly decreases. Moreover, you don’t know the direction of the breakout.
- Typically, the breakout occurs between the middle and ¾ of the triangle. If the price moves into the last quarter of the triangle, then the chance of a breakout is greatly reduced. Most likely, the price will gradually exit the pattern and the further trend will be uncertain.
- If the price reverses without touching the side of the triangle, the chance of a quick breakout rises.
- There is a chance of false breakout. Wait for the candle to close. If the close price is outside the triangle, you can open a trade in the direction of the bar's movement.
- During the formation of the triangle, the volume will decrease. At the moment of breakout, it should significantly increase.
Expanding Triangle
Finally, I'll tell you about another type of triangle. It’s not very popular as opinions about trading strategies differ.
Expanding Triangle
- Apex
- Resistance
- Support
- Base
Some think that it’s too dangerous to trade within the triangle since the further price movement remains uncertain. Others prefer to open trades closer to the base as the potential profit grows along with the volatility with each new swing. Which strategy to choose is up to you.