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Symmetrical Triangle Patterns for Predicting Trading Signals

The article about Symmetrical Triangle Pattern, what is it, how it forms, and how to trade it.

 Hello dear readers,

Financial markets have become an integral part of the modern world. We see the impact of financial markets directly or indirectly in every aspect of our daily lives. With changing economic conditions, the importance of financial trading is increasing for all of us. Chart patterns in technical analysis are a decisive factor in this process. In this article, we will take a closer look at the Symmetrical Triangle, one of the chart patterns in technical analysis used in financial trading.

What is the Symmetrical Triangle Pattern?

The Symmetrical Triangle is a neutral chart pattern. It represents a state of balance and uncertainty in price action. The appearance of this pattern means that prices can be equally strong in both directions in the struggle between buyers and sellers. The Symmetrical Triangle is also a sign that prices will break out in a distinct direction in the near future. This pattern shows that prices will either rise or fall. Symmetrical triangles, which can be seen in both bullish and bearish trends, reflect a state of equality in price movements. A symmetrical triangle formed in an uptrend usually indicates an upward breakout, while a symmetrical triangle formed in a downtrend generally signals a downward breakout. However, the opposite can also occur. Therefore, the Symmetrical Triangle is considered a bilateral (neutral) chart pattern in technical analysis.

An image of Symmetrical Triangle pattern in technical analysis
Symmetrical Triangle Chart Pattern

At times, the Symmetrical Triangle pattern may be confused with the Pennant chart pattern. However, there is a significant distinction between the two. The Pennant pattern has a pole (flag/pennant pole), while the Symmetrical Triangle pattern often does not include this pole. Additionally, the Symmetrical Triangle pattern is a chart pattern that carries uncertainty about the direction of the market.

How Does a Symmetrical Triangle Pattern Form?

The Symmetrical Triangle chart pattern forms when price movements oscillate within a narrow range. This fluctuation creates two converging imaginary trend lines. The upper line of the triangle represents the resistance level, while the lower line represents the support level. Prices usually get squeezed within this triangle, and as the apex of the triangle tightens, an upward or downward trend is expected. The price movement between these two components in the structure of the Symmetrical Triangle pattern creates the triangular appearance on the chart:

  • Descending Upper Line: The line forming the upper part of the triangle is created by connecting consecutive lower highs. The upper line is often known as the resistance line and slopes downward in a relatively straight manner.
  • Ascending Lower Line: This line, which forms the lower part of the triangle, is created by connecting a series of consecutive higher lows. The lower line is often recognized as the support line and slopes upward in a relatively flat manner.

The lines connecting troughs and peaks form the ascending lower and descending upper lines of the Symmetrical Triangle. These two lines converge to create a triangular-like structure, from which the pattern gets its name. The Symmetrical Triangle pattern often signals a consolidation period within an ongoing trend. Prices become trapped within a defined range as buyers and sellers engage in a power struggle.

How to Trade the Symmetrical Triangle Pattern?

The Symmetrical Triangle pattern typically forms over a specific period, and we often wait for the breakout of any side of the triangle to determine when prices will explode. If prices break above the upper line of the triangle, this usually indicates the beginning of an upward trend. Conversely, if the lower line is broken downward, a downtrend may begin. This is a determining factor in whether we will buy or sell.

An upward breakout occurs when the price surpasses the upper trend line. This breakout can present an opportunity to take a long position. An increase in volume during the upward breakout should be considered. Commonly, as prices get squeezed at the apex of the triangle, volume tends to decrease. However, volume may increase during or after the breakout, further enhancing the reliability of the signal.

  • Long (Buy) Position: A buy order can be placed at the point where the price breaks above the upper line.
  • Stop Loss: A stop-loss order can be placed slightly below the lower line of the triangle.
  • Target: After the price breaks above the upper line, the target price is usually set equal to the height of the symmetrical triangle (the distance between the lower and upper lines of the triangle).

When looking at the trading example on the 1-hour EUR/Swiss Franc currency chart, you can see that prices broke above the upper line of the Symmetrical Triangle pattern, indicating an upward movement:

Visual representation of a Symmetrical Triangle pattern breakout in EUR/CHF, indicating a possible upward price movement.
Symmetrical Triangle Pattern on EUR/CHF chart

A downward breakout (breakdown) occurs when the price surpasses the lower trend line, indicating a strengthening downtrend. When this breakdown occurs, we may prefer to open a short position. Breaking below the lower line can be considered a sell signal. However, it's important to use other indicators alongside this breakdown to confirm the pattern.

  • Sell (Short): It is possible to place a sell order when the price breaks the lower line of the pattern downwards.
  • Stop Loss: A stop loss order can be placed above the sell point (slightly above its upper line).
  • Target: The target price is usually considered equal to the height of the symmetrical triangle (the vertical distance between the upper and lower lines of the triangle) and is calculated by adding downward from the breakdown point.

In the following trading example, on the 1-hour British Pound/US Dollar currency chart, prices have entered a downward movement by breaking below the lower line of the Symmetrical Triangle pattern:

Symmetrical Triangle pattern breakdown on GBP/USD 1-hour chart
Symmetrical Triangle Pattern on GBP/USD chart

Remember: Financial markets always involve risk. Like all chart patterns, the Symmetrical Triangle chart pattern can also give misleading signals. Avoid using it alone and evaluate it together with fundamental analysis. Price fluctuations can offer opportunities as well as risks. Therefore, developing accurate strategies and effectively managing risks is crucial.

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