Symmetrical Triangle Pattern: While trading in the stock market traders are always looking for an edge by trying out different technical tools whether it be technical indicators or price action-based patterns.
One such technical chart pattern is a symmetrical triangle pattern which is formed when the price moves between a lower ascending trendline and an upper descending trendline.
In this article, we will discuss what is a symmetrical triangle pattern, its characteristics, how the pattern is formed, and its implications for traders and investors.
What Are Technical Chart Patterns?
A technical chart pattern is a shape within a price chart that helps to suggest what prices might do next, based on what they have done in the past.
Chart patterns are the basis of technical analysis and require a trader to know exactly what they are looking at, as well as what they are looking for.
What Is A Symmetrical Triangle Pattern?
A symmetrical triangle is a chart pattern that occurs in financial markets and is used by traders and investors to identify potential price movements.
It is a consolidation pattern that signals a potential trend reversal and is formed by two converging trendlines connecting a series of highs and lows.
The symmetrical triangle is a popular pattern among technical analysts because it provides a clear set of rules for determining entry and exit points.
Characteristics Of A Symmetrical Triangle
The symmetrical triangle is formed by two converging trendlines connecting a series of highs and lows. The trendlines are usually drawn using a trendline tool and connect the highs and lows of the price action.
The two trendlines form the sides of the triangle and the point at which they converge is referred to as the apex. The symmetrical triangle is a neutral pattern, meaning that it can signal a potential move on either side as the price can break either trendline.
Formation Of A Symmetrical Triangle
The symmetrical triangle forms when the price action of a security moves within a narrow range. The range is defined by the two converging trendlines, with the upper trendline connecting the highs and the lower trendline connecting the lows.
As the price action moves within the narrowing range, it creates a series of higher lows and lower highs, forming a symmetrical triangle pattern.
The pattern is considered complete when the price action breaks through one of the trendlines, signaling a potential trend reversal.
Example Of How To Trade A Symmetrical Triangle Pattern
In the image above the price was in a range trading between an ascending lower trendline and a descending upper trendline.
Once it broke out of the pattern on the downside you could have taken a short position with your stop loss at the previous point where the price took a pause and you can aim for a target of the distance between the high point and low point of the symmetrical triangle.
The target should be measured from the point of breakout.
Implications For Traders And Investors
The symmetrical triangle pattern is popular among traders and investors because it provides a clear set of rules for determining entry and exit points.
Traders can use the pattern to enter a long position when the price action breaks through the upper trendline or to enter a short position when the price action breaks through the lower trendline.
The pattern can also be used to set stop-loss orders, with the stop-loss placed just outside the trendline that is being broken.
The symmetrical triangle is also useful for determining potential price targets. Traders can use the height of the triangle, measured from the highest point to the lowest point, to estimate the potential price move after the break of the trendline.
The height of the triangle can be added to the price of the break to estimate the potential price target for a long position or subtracted from the price of the break to estimate the potential price target for a short position.
Also Read: 8 Best Books For Intraday Trading – Top Reads For Beginners!
In Closing
The symmetrical triangle is a popular chart pattern that is used by traders and investors to identify potential price movements.
It is a consolidation pattern that signals a potential trend reversal and is formed by two converging trendlines connecting a series of highs and lows.
The pattern provides a clear set of rules for determining entry and exit points and can be used to estimate potential price targets.
However, it is important to remember that the symmetrical triangle is a neutral pattern and does not indicate the direction of the trend reversal.
Traders and investors should always use additional technical analysis and market knowledge to confirm the validity of the pattern and make informed trading decisions.
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