In this section, I want to walk you through one of the most popular continuation patterns called the symmetrical triangle pattern. A continuation pattern is a standard technique that will allow you to enter into a trending market if you’ve missed the starting point of a new trend. The continuation pattern is traded in the direction of the prevailing trend.
In this regard, when trading a continuation pattern, it’s mandatory to have a pre-existing trend and avoid sideways ranging markets. If you see a symmetrical triangle chart pattern when there’s no clear market direction, ignore it completely.
In the study of technical analysis, there are three types of triangles:
- Symmetrical Triangles
- Ascending Triangles
- Descending Triangles
In the first part of this deep-dive, I want to show you how to identify the symmetrical triangle chart pattern in real time and then, before we look at a simple trading strategy to take advantage of this continuation pattern.
How to Recognize Symmetrical Triangle Pattern
Usually, after the market has been trading strongly in a single direction, it moves sideways as if to catch its breath. During this time of consolidation, symmetrical triangle patterns will often emerge.
- As we’ve mentioned earlier, the first element of the symmetrical triangle is an ongoing trend, either bullish or bearish trend. So watch for these patterns in markets that are clearly trending.
- The second element of the symmetrical triangle is a series of lower highs that can be connected using a resistance line sloping downwards.
- The third element of the symmetrical triangle is a series of higher lows that can be connected using a support line sloping upwards. At some point the resistance and support line should converge, making the breakout inevitable.
If the symmetrical triangle pattern is something you want to incorporate into your own trading, then you need to train your eye to spot the shape you see in the image below:
Next, we should look at how to trade the trend continuation setup, place your stop and place the target for the symmetrical triangle pattern.
Strategy to trade Symmetrical Triangle Pattern
Now that we know what we’re looking for in the market, we can start looking at how we can place trades using the pattern. The textbook strategy is to wait for a break and close below the resistance line sloping downwards.
The market momentum should align with the market direction, so when the price breaks above the resistance line sloping downwards, the following move is very explosive and fast moving.
The breakout can also happen in the opposite direction of the prevailing trend, but for a higher success rate, I only trade the breakout in the direction of the prevailing trend.
The profit target for this price formation is the height of the triangle measured in the direction the breakout from the breakout point. The height of the triangle can be measured using the highest and lowest point of the symmetrical triangle.
The stop loss placement for the symmetrical triangle will be whatever your risk level is underneath the support line sloping upwards. The price structure of the actual triangle gives us a decent spot to hide our protective stop loss. You can also add a buffer to cancel out the short-term market noise.
here are some real chart examples of the symmetrical triangle pattern to illustrate the above points in a real market environment.
Symmetrical Triangle Pattern Real Trading Examples
In the chart example below, the price is making a series of higher lows and lower highs as the price is consolidating. This is a perfect example of a bullish symmetrical triangle, which leads to the continuation of the previous bullish trend.
An example of the bearish symmetrical triangle pattern can be seen in the figure below. The only difference is that the pre-existing trend is down.
The shape of the symmetrical triangle is given by the direction of the prevailing trend. If we have a bullish pre-existing trend the symmetrical triangle can potentially lead to a continuation of the bullish trend. The most important characteristic of the symmetrical triangle is the prevailing trend. The stronger the pre-existing trend the more reliable the symmetrical triangle will be.