Overview
Symmetrical Trianglespatterns are continuation patterns that generally mark a pausein the preceding trend. It’s identified as having two convergingtrendlines that take the shape of a sideways triangle. This patterncan mean the market has simply gotten ahead of itself and it needs toconsolidate or it truly is in a period of indecision and is lookingfor direction. Attempts to push higher are met by selling andattempts to push lower are met with buying. Each new lower high andhigher low becomes shallower than the last. Volume will usuallydiminish during this period as well. Eventually, the symmetricaltriangle resolves itself and often with an explosive breakout in thedirection of the preceding trend.
Symmetrical Trianglesin Uptrends / Bullish The majority of the time, a SymmetricalTriangle in an uptrend will breakout to the upside. A high volumebreakout is more reliable than a low volume breakout. SymmetricalTriangles in Downtrends / Bearish Symmetrical Triangles indowntrends will typically breakout to the downside. However, anincrease in volume is not required for a successful breakout. Infact, a significant increase in volume might be considered suspect.Although, volume should start to increase as the downside movecontinues. Identifying and Drawing Symmetrical Triangles
Triangles are usuallyquite easy to see on a chart. Especially when the lines have alreadybeen drawn in. To identify a Symmetrical Triangle pattern on yourown, remember that it has to have at least four points: two points atthe top to draw the downward slanting trendline and two points at thebottom to draw the upward slanting trendline. Connecting the highpoint and the subsequent lower high forms the top part of thetriangle. Connecting the low and the subsequent higher low forms thebottom part of the triangle. Symmetrical Triangles in uptrendsare bullish, while Symmetrical Triangles in downtrends are bearish.
For a bullishSymmetrical Triangle pattern, the first point (the point farthestleft, 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 fourpoints. The image to the right has six. Measured Moves (MinimumProfit Targets) To determine your projected minimum profit target,measure the distance between points 1 and 2. This is the widest partof the triangle and is often referred to as the base. For example: ifthe 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 thestock broke thru the triangle. For this example, let’s say $54.Then add $6 to the breakout price of $54 and you have you minimumprojected profit target of $60. (See image.)
Failures and Stop-OutPoints There are different failure points based on how you enter thetrade. If you enter the trade after a breakout, you should use a movebelow the apex point as your failure point and exit the trade. (Theimage below depicts a Symmetrical Triangle in an uptrend forillustration.)
If you get in before abreakout occurs in anticipation of one, a move below the last pointof the triangle (e.g., point 4 in a four pointed triangle or point 6in a six pointed triangle, etc.) should be your failure point and youshould consider exiting the trade. (The image to the right depicts aSymmetrical Triangle in an uptrend for illustration.) For themore experienced chart pattern trader, you might choose to stay in alittle longer if you believe the pattern is being ‘re-drawn’ intoa new pattern such as a larger triangle, or a bullish flag or even awedge. This can makes sense if your early entry was near the bottomof the pattern and staying in a little longer still keeps your riskwithin your level of tolerance.
Summary The use of theword ‘Symmetrical’ in describing the Triangle is used loosely andis more of a way of distinguishing it from an Ascending Triangle andDescending Triangle. The Symmetrical Triangle doesn’t have to besymmetrical per se’, but as stated earlier, it does have to havetwo converging trendlines -- the top line slanting downward and thebottom line slanting upward so that they eventually come together toform a right sided triangle. Since this pattern is a continuationpattern, it’s most profitable to trade this in the direction of thepreceding trend. You can get in after a breakout has occurred or youcan choose to get in early in anticipation of a breakout takingplace. Either way, pay attention to the volume and your failurepoints and the Symmetrical Triangle will become a trusted pattern inyour trading.
