Symmetrical Triangle

Here’s the symmetrical triangle again, with a few more lines added for discussion. It’s a neutral sort of shape, so it’s usually neutral in effect, just giving a pause to the current trend before it continues again. You can see it in either an uptrend or a downtrend, and the chances are that the same trend will resume when the price leaves the constraining lines of the triangle.

The vertical line at the start of the triangle, called the base, measures the height of the triangle pattern. The point in the future where the two lines meet is the apex of the triangle. The triangle is really just made up of two trend lines which converge at the apex. As you need at least two points to draw a trendline, you are able to draw it after the first four points, and that is when you realize that you have a symmetrical triangle pattern.

I’ve shown a couple of additional points of reversal on the triangle before the trend resumes, and this is how you will frequently see it – with a total of six points touching and being bounced back by the triangle.

As you can see, this pattern must resolve with a breakout within a certain time, as the price is getting squeezed down to the apex. You will usually find that the breakout happens in an area between two-thirds and three-quarters along the triangle – the diagram shows about two-thirds. As soon as you have four points and can draw the symmetrical triangle, you can measure how far along the breakout should happen. Rarely the price will not breakout by the three-quarters mark, and in that case the triangle pattern may fail and the prices just drift.

The triangle pattern will be completed and the signal given when the price breaks out and closes outside the triangle. Usually this will be in the original direction. You can apply the same criteria to this as to any penetration of a line, which is that an intraday penetration is not usually significant if the price returns, and some people like to see the price stay outside the line for two days. The penetrated line may become a support or resistance subsequently, and the apex level can also be an important support or resistance price level in future movement.

Volume is important to reinforce the pattern. As the price oscillates within the triangle, the trading volume should reduce, and when the breakout happens you should expect to see heavier volume which shows the resolve of the trend. As has been said before, volume for an uptrend is more important than for a downtrend, in fact an uptrend without good volume should be distrusted.

The triangle above shows a couple of techniques for price targeting. The first one is to measure the height of the triangle, which is marked base, and project that height up from the breakout point. That’s shown by the two vertical arrows. The other method is to draw a channel line parallel to the triangle’s lower trendline, and starting at the top of the baseline, and this becomes a target for the trend. You may notice that this is reached at round about the same time as the triangle’s trendlines meet at the apex.

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