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Forex Glossary

Symmetrical Triangle

A symmetrical triangle is a technical chart pattern that indicates a period of indecision or consolidation in the market. Hence, it is known as a continuation pattern.

It is characterized by two converging trend lines, one sloping upwards and the other sloping downwards, forming a triangular shape.

This pattern typically occurs during a sideways trend, where the price of an asset moves horizontally or within a narrow range, and there is neither a sustained uptrend or downtrend. The sideways movement or consolidation is what most traders would call a “choppy market”.

What are Symmetrical Triangles?

Symmetrical triangles fall under a category of continuation patterns known as triangles. There are three types of triangles, namely:

However, unlike ascending and descending triangles, symmetrical triangles have both upper and lower trendlines that converge toward a central point.

Ascending triangles have a flat top, suggesting a possible upward breakout. Descending triangles, on the other hand, have a flat bottom, indicating a potential downward breakthrough.

What does a Symmetrical Triangle Pattern Indicate?

A symmetrical triangle indicates a period of indecision or consolidation in the market. Therefore, it suggests that there is a balance between buying and selling pressure, leading to a sideways movement in price.

While the pattern itself doesn’t provide a clear direction for the subsequent price movement, it often signals that a breakout is likely to occur soon. The direction of the breakout, whether upward or downward, will depend on the prevailing market sentiment and other factors.

Is Symmetrical Triangle Bullish or Bearish?

Naturally, a symmetrical triangle can be either bullish or bearish. The direction of the subsequent price movement depends on the direction of the breakout.

Bullish Breakout: If the price breaks above the upper trendline, it signals a potential bullish continuation of the previous uptrend.

Bearish Breakout: If the price breaks below the lower trendline, it indicates a potential bearish reversal.

Therefore, it’s crucial to wait for the breakout to occur and identify its direction before determining whether the symmetrical triangle is bullish or bearish.

How to Identify the Pattern

To identify a symmetrical triangle, traders should look for these five key elements:

  • the converging trendlines,
  • the symmetrical shape,
  • consolidation,
  • volume, and;
  • the breakout point,

Here is a step-by-step guide to identify a symmetrical triangle:

  1. First, look for two trend lines that are converging, meaning they are getting closer together over time. The top line connects lower highs, while the bottom line connects higher lows. This convergence shows that buyers and sellers are unsure about which way the market will go, creating a period of consolidation.
  2. The lines should form a symmetrical triangle, with the upper and lower trend lines sloping towards a central point.
  3. The price should be moving sideways or within a narrow range during the formation of the triangle.
  4. Pay attention to volume. A decreasing volume during the formation of the triangle can be a bullish signal, as it suggests that selling pressure is weakening.
  5. The pattern is complete when the price breaks out of either the top or bottom trend line. A breakout is confirmed by a surge in volume, indicating the pattern’s validity and the start of a new price trend.

How to Trade a Symmetrical Triangle

  1. Identification: Identify a symmetrical triangle pattern on a chart by spotting two converging trendlines, one sloping upwards and the other sloping downwards, forming a symmetrical shape. Ensure that the pattern has at least two lower highs and two higher lows touching the trendlines.
  2. Confirmation: Wait for a breakout from the triangle. A breakout occurs when the price breaks above the upper trendline for an upward breakout or below the lower trendline for a downward breakout. Look for a confirmation candle or bar to close outside the triangle to increase confidence in the breakout.
  3. Entry: Place your entry order either at the breakout point or slightly above/below it, depending on your risk tolerance and the direction of the breakout.
  4. Stop Loss: Set a stop-loss order below the low point of the triangle for a bullish breakout or above the high point for a bearish breakout. This helps to limit your losses if the price moves against you.
  5. Take Profit: Determine your take-profit target by measuring the height of the triangle and projecting it from the breakout point. You can also use Fibonacci retracement levels as potential targets.
  6. Monitor the Market: Monitor the market closely after entering the trade. If the price moves against you, consider exiting the trade at your stop-loss level. If the price moves in your favor, adjust your take-profit target if necessary.

Conclusion

In summary, a symmetrical triangle is a technical chart pattern that signals a period of market indecision or consolidation. It is characterized by two converging trendlines, one sloping upwards and the other sloping downwards, forming a triangular shape.

Unlike ascending and descending triangles, symmetrical triangles have both upper and lower trendlines converging towards a central point.

While the pattern itself doesn’t predict the direction of the subsequent price movement, it often indicates that a breakout is imminent. The direction of the breakout, whether bullish or bearish, will depend on the prevailing market sentiment and other factors.

Therefore, it’s essential to wait for the breakout to occur and identify its direction before making trading decisions based on this pattern.

 

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