What is Symmetrical Triangle Chart Pattern?
Symmetrical Triangle is a chart pattern, characterized by converging top and bottoms. This is created when there is indecision in the direction of the market.
They are the pressure areas in a stock chart where the bulls are optimistic about the market and wants to buy more. Where as the bears are pessimistic and wants to sell more. This creates higher high swing bottoms and lower low swing tops, which forms a pattern, which looks like a triangle. The bottom of the triangle is an up sloping support trend line and the top is down sloping resistance trend line.
It may be both reversal or continuation chart pattern. It is so named because there is symmetry in the support and resistance trend lines, which converge and meet on the right side, hence the name Symmetrical Triangle.
Trend is your friend. Dance with the friend. Tune to the trend.
This pattern is formed because of tug of war between the two great forces which move the price up and down, that is demand and supply.
These are pressure areas where bulls and bears have equivocal interest. It may be a resistance area in a bull market or a support area in a falling market. It might be a target area. It might be a result of a subtle something bad cooking in an up trend. Or It might be a result of a something good happening in a down trend.
In such or any similar situation the buyers action is antagonized by sellers at higher level and sellers action is antagonized by buyers at lower levels. But bulls demand does not allow the price to fall below the previous low and bears supply does not allow the price to rise above the previous high.
So we get a series of higher high swing lows and lower low swing highs. When these higher high swing lows are joined by a straight line, we get up sloping trend line which forms the lower side of the triangle. When we draw a straight line connecting the lower low swing highs, we get down sloping trend line which forms the upper side of the triangle.
When these lower up sloping trend line and the upper down sloping trend line if extended join on the right side. The triangle is completed by an imaginary line joining the left end of these lines.
This completes the formation of Symmetrical Triangle.
Study the chart given below.
This chart shows two Symmetrical Triangles. First symmetrical triangle is bullish reversal pattern. While the second symmetrical triangle is bearish continuation pattern.
Pattern trading is one of the strategies of making money in stock trading. Among the chart patterns different types of triangle formation gives consistent results.
Symmetrical Triangle chart patterns can occur both in an up trend or a down trend. In a trending market, when the trend looses strength, it forms contracting swings, with lower low swing tops and higher high swing bottoms, which when joined forms converging trend lines. This indicates the lack of direction of the market.
The moment you see two swing lows with second low higher than the first swing low and two swing highs with second high lower than the first swing high, you should think of this symmetrical triangle chart pattern formation. And since it is a neutral pattern, anticipate trades in both direction.
If the power of demand wins over the power of supply the price break out of the triangle to the up side. So this pattern acts as a continuation pattern in an up trend but acts as a reversal pattern in a down trend.
By following this upward breakout we can have a long trade. Buy above the high of the breakout bar. The minimum target for this up move is equal to the height of the left base of the symmetrical triangle. To get this target, measure the height of the base and apply that length from the breakout point, that is the upper down sloping trend line. Always protect your trade with the stop loss order placed below the pattern or conservatively, it can be placed below the breakout bar.
Conversely If the power of supply wins over the power of demand the price break out of the triangle to the down side. In such a scenario this pattern acts as a continuation pattern in a down trend and acts as a reversal pattern in an up trend.
By following this downward breakout we can have a short trade. Sell below the low of the breakout bar. The minimum target for this down move is equal to the height of the left base of the symmetrical triangle. To get this target, measure the height of the base and apply that length from the breakout point, that is the lower up sloping trend line. Always protect your trade with the stop loss order placed above the pattern or conservatively, it can be placed above the breakout bar.
A small triangular consolidation in a trending market, which is smaller in size and having a few bars is called as a Pennant. Click the link below to learn about it.
There are many more chart pattern formation used in pattern trading. Some of them are listed below. You may click on the name of each chart pattern listed below to learn and understand more about them.
Continuation Chart Patterns