The Symmetric Triangle Pattern | Trading Strategy and Screening

Symmetrical Triangle Pattern Trading Strategy

As already written above, the symmetrical triangle pattern is not a continuation pattern. So both the upward and downward breakout can be used. Nevertheless there are traders who will only take positions in the direction of the existing trend. If the trend prior to the formation was positive, only buying opportunities will be considered. If the preceding trend is negative however, one will look to take a short position. Whatever you prefer, in the end it comes down to setting your entry and stoploss levels in advance in order to limit your risk.

An example is shown below in the chart of Innoviva Inc. on July 27, 2021. The highest price at that time was dated May 26, 2021 at the price level 13.97$. From then on a symmetrical triangle pattern with successive higher bottoms (green line) and lower tops (red line) emerged which finally led to a narrow price range between 13 and 13.5$ at the end of July (in the period from 19 to 27 July).

Let's see what happened on July 28, 2021. On that day, the price rises by almost 3% and a long white candle forms with a clear break above the red descending trend line. This is a bullish breakout at the top of the symmetrical triangle pattern.

Based on this breakout pattern, we can define the following longsetup: Buystop@13.76$ with limit@13.89$ Stoploss@12.83

Aggressive traders can use a shorter stoploss but should take into account that the risk of being stopped out too soon increases significantly. The stoploss used here is based on the Average True Range (ATR) with a minimum stop distance of 2 ATR. More about the Average True Range indicator and its usefulness when setting a stoploss can be read in this article.

On July 29, the share price opens with a gap up at 13.78$. Since our buy limit was set at 13.89, the buy order would have been executed. The day itself and the day after, the further price development is rather unclear. Buyers and sellers keep each other somewhat in balance. The long lower and upper tails of those two candles clearly show that. The 14$ level, the earlier top at the end of June, initially provides some resistance. As of August 2, however, the buyers take the lead with a new strong rising white candle and a closing price that is more than 3% higher.

Fast forward to today's chart. The stock price closed at $15.62. The highest price dates back to August 18, 2021 with a top at 16.71$.

A quick calculation shows that based on the setup and stoploss retained above, a profit of at least three times the risk could be realized in just 15 trading days. And for those who had set the stoploss a lot tighter, the risk/reward ratio could easily have risen to 5 or more...

How to adjust the stoploss in open positions to protect some of your accumulated profits and still stay in the trade as long as possible? Watch this video!

Symmetrical Triangle Pattern Stock Screener.

The ChartMill Stock Screener supports finding symmetrical triangle patterns. On the indicators tab you can just select 'Symmetrical Triangle' from the 'Chart Patterns' filter on the 'indicators' tab.

To make the trend lines visible that form the pattern, select the option 'support + resistance lines’ in the main or secondary chart.

There is a fully configured screen available linked to this article. This is a direct link to the screener.

The ChartMill Team