Symmetrical Triangle Chart Pattern
Symmetrical Triangle Chart Pattern is a unique continuation patterns. This is because it can be a bullish continuation and also a bearish continuation pattern.
The above picture shows how a symmetrical triangle chart pattern looks like. Based on its shape, it is also known as a coil. The symmetrical triangle is made up of two converging trendlines. The place where the two trendlines meet is called the apex.
In order to form a symmetrical triangle, there should at least be 4 reversal points. There are times when the symmetrical triangle forms 6 reversal points. The reversal points starts at 1 then moving down to form 2 and moving up again to form 3 and so on till it reaches 6.
Notice that the symmetrical triangle chart pattern is formed by lower highs and higher lows.
If you look at the picture, you will see that the high at 5 is lower than the high at 3. The high at 3 is lower than the high at 1. On the other hand, the low at 6 is higher than the low at 4 and the low at 4 is higher than the low at 2. Draw a line across the high and lows and you will have two trendlines that converge at the apex.
As mentioned, there must be at least 4 reversal points. Therefore, it is only when the 4th reversal points forms that we begin to suspect we are dealing with a symmetrical triangle.
This is very important as we do not want to enter a trade before a symmetrical triangle pattern is confirmed.
Bullish or Bearish continuation?
Whether the symmetrical triangle is a bullish continuation patterna or a bearish continuation pattern depends on the prior trend. If the prior trend is up, then it is a bullish continuation pattern. If the prior trend is down, the it is a bearish continuation pattern.
Please note that this does not mean that the symmetrical triangle chart pattern will always signal a continuation of the prior trend. It is just that the direction of the stock move after the symmetrical triangle favors the prior trend. We will need to look at the direction of the breakout for confirmation.
The symmetrical triangle is also unique in the sense that it provides us with a price and time measurement. Unlike many other patterns, the symmetrical triangle gives us an indication of when prices will breakout as well the target price after the breakout.
Remember the two trendlines that converge at the apex? The stock should breakout somewhere between two-thirds to three quarters of the horizontal width of the symmetrical triangle. When the stock reaches that area, we begin to look for a breakout.
The breakout to the upside happens when the stock price penetrates the upper trendline. The breakout to the downside happens when the stock price penetrates the lower trendline.
We look for the stock to continue its movement towards the direction of the breakout.
Sometimes, the stock will return to the trendline after the breakout. The upper trendline acts as a support in an upward breakout. The lower trendline acts as a resistance in a downward breakout. The apex also acts as an important support or resistance area.
- The symmetrical triangle can last for a few weeks to a few months.
- Volume should diminish as the patterns completes.
- We can inspect the volume to see whether heavier volume occurs during the upmoves or downmoves. In an uptrend, there should be heavier volume on the upmoves. In a downtrend, there should be heavier volume on the downmoves.
How to measure the price target
There are two ways that we can use to measure the price target.
The first way (A) is to measure the widest part of the triangle and project it upwards from the breakout point (C).
The second way is to draw a parallel line. This line will become the price target.
Please note that the above ways to measure the price target only give us a rough target. The stock could go up ruther after reaching the target or reverse just before it reaches the price target.
How to trade the Symmetrical Triangle Chart Pattern
Entry: Enter once the price breaks out of the trendline on higher than average volume. You can also enter when the stock returns to the trendline or the apex after the breakout.
Stop: You can put a stop under the lows of the base or last pivot low or under the lows of the setup bar(the breakout day). Where you decide to place the stop will depend on your tolerance for risk and on your experience.
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