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Symmetrical triangle pattern: definition & interpretation
What is a Symmetrical Triangle?
Triangle patterns are probably the most popular chart patterns studied by traders.
There are three different types of triangles: The ascending triangle, the descending triangle, and the symmetrical triangle.
Symmetrical triangles occur when price is consolidating in a way that generates two converging trend lines with similar slopes. It is called "horizontal" because it forms a holding pattern with around 90 bars in which the price moves sideways.
The symmetrical triangle usually forms during a trend as a continuation pattern. They tend to break in the direction of the initial move before the triangle formed. But it can be a powerful reversal pattern, in the event of failure.
As the market continues to trade in a sideways pattern, the range of trading narrows and the apex of the triangle is formed. The apex of the triangle is a place where supply and demand intersects. The more price approaches the apex, the bigger the chance of a breakout. The pattern will be completed after the breakout (in either direction)
A breakout or failure of a triangle pattern, especially on large volume, can be a strong signal of a resumption, or reversal, of the previous trend.
Interpretation of the Symmetrical Triangle Pattern
Symmetrical triangles, are thought of as continuation patterns developed in markets that are, for the most part, aimless in direction. This Pattern reveals that the market is very unsure about what is going on. Investors do not know what position to take.
The triangle pattern shows losing interest, both from the buy-side as well as the sell-side. During this period of indecision, the highs and the lows seem to come together at the apex of the triangle with virtually no significant volume. The supply and demand seem to be one and the same.
A symmetrical triangle pattern is the result of the contraction of volatility in the market. In other words, volatility is constantly decreasing.
In essence, the symmetrical triangle represents a period of consolidation where traders find a chance to take a breath before the price is forced to break out.
Construction of the Pattern
• Support Trendline
In technical analysis, support is defined as the price floor where a downtrend can be expected to pause. A trendline that connects a series of lows over a period of time is defined as a support trendline. Think of the lower trendline, as the demand line, which represents support on the chart. At this point, the buyers outpace the sellers, and the price begins to rise.
• Resistance Trendline
A resistance trendline is a downtrend line that connects a series of highs together.
• Triangle’s Height
The height is the distance between the initial high and low of the triangle pattern. This parameter is commonly used as a breakout target for the symmetrical triangle pattern.
• Apex of the Triangle
The apex of a triangle is the intersection point of the support and resistance trendline.
Pros & Cons of Trading Symmetrical Triangle Pattern
• Pros
▹Symmetrical triangles can form in any time frame.
▹These patterns are a sign of an impending breakout. Once the pattern is completed, we will probably have an explosive price movement.
▹A symmetrical triangle is a reliable continuation pattern, so the direction of the breakout can be guessed, based on the prior trend direction.
• Cons
▹False breaks are common with symmetrical triangle patterns and can lead to significant losses.
▹Compared to other chart patterns, triangles take longer to develop and become identifiable.
The Bottom Line
The triangle pattern is one of the most common and popular chart patterns in technical analysis. A better understanding of this pattern and the reasons why it appears on the chart can help us better understand market behavior and identify trading opportunities.
Triangle patterns are probably the most popular chart patterns studied by traders.
There are three different types of triangles: The ascending triangle, the descending triangle, and the symmetrical triangle.
Symmetrical triangles occur when price is consolidating in a way that generates two converging trend lines with similar slopes. It is called "horizontal" because it forms a holding pattern with around 90 bars in which the price moves sideways.
The symmetrical triangle usually forms during a trend as a continuation pattern. They tend to break in the direction of the initial move before the triangle formed. But it can be a powerful reversal pattern, in the event of failure.
As the market continues to trade in a sideways pattern, the range of trading narrows and the apex of the triangle is formed. The apex of the triangle is a place where supply and demand intersects. The more price approaches the apex, the bigger the chance of a breakout. The pattern will be completed after the breakout (in either direction)
A breakout or failure of a triangle pattern, especially on large volume, can be a strong signal of a resumption, or reversal, of the previous trend.
Interpretation of the Symmetrical Triangle Pattern
Symmetrical triangles, are thought of as continuation patterns developed in markets that are, for the most part, aimless in direction. This Pattern reveals that the market is very unsure about what is going on. Investors do not know what position to take.
The triangle pattern shows losing interest, both from the buy-side as well as the sell-side. During this period of indecision, the highs and the lows seem to come together at the apex of the triangle with virtually no significant volume. The supply and demand seem to be one and the same.
A symmetrical triangle pattern is the result of the contraction of volatility in the market. In other words, volatility is constantly decreasing.
In essence, the symmetrical triangle represents a period of consolidation where traders find a chance to take a breath before the price is forced to break out.
Construction of the Pattern
• Support Trendline
In technical analysis, support is defined as the price floor where a downtrend can be expected to pause. A trendline that connects a series of lows over a period of time is defined as a support trendline. Think of the lower trendline, as the demand line, which represents support on the chart. At this point, the buyers outpace the sellers, and the price begins to rise.
• Resistance Trendline
A resistance trendline is a downtrend line that connects a series of highs together.
• Triangle’s Height
The height is the distance between the initial high and low of the triangle pattern. This parameter is commonly used as a breakout target for the symmetrical triangle pattern.
• Apex of the Triangle
The apex of a triangle is the intersection point of the support and resistance trendline.
Pros & Cons of Trading Symmetrical Triangle Pattern
• Pros
▹Symmetrical triangles can form in any time frame.
▹These patterns are a sign of an impending breakout. Once the pattern is completed, we will probably have an explosive price movement.
▹A symmetrical triangle is a reliable continuation pattern, so the direction of the breakout can be guessed, based on the prior trend direction.
• Cons
▹False breaks are common with symmetrical triangle patterns and can lead to significant losses.
▹Compared to other chart patterns, triangles take longer to develop and become identifiable.
The Bottom Line
The triangle pattern is one of the most common and popular chart patterns in technical analysis. A better understanding of this pattern and the reasons why it appears on the chart can help us better understand market behavior and identify trading opportunities.
Disclaimer
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