Symmetric Triangle Pattern

Symmetrical Triangle Pattern definition

How to recognize a Symmetric Triangle?

The symmetric triangle pattern, as well as the ascending and descending triangle pattern, forms a classic chart pattern within technical analysis. Compared to the other triangle patterns, however, there is an important difference. The symmetrical triangle pattern is considered neutral, therefore the probability of the pattern breaking out at the bottom or top is 50/50.

Typical trend traders will take into consideration the long-term trend though and use the pattern in the direction of the existing main trend. But it can just as easily be used as a reversal signal, when the trader believes the existing trend is coming to an end.

The pattern is characterized by an ascending and descending trend line running closer and closer to each other, creating the typical symmetrical triangle pattern.

Main features to keep in mind when using the symmetric triangle pattern

  • Both trend lines must converge and connect a series of consecutive tops and bottoms

  • Both trend lines must have more or less the same slope

  • During the formation of this pattern, volume decreases

  • The upward or downward breakout is characterized by a clear sharp increase in volume

    Symmetrical Triangle Pattern definition

Symmetric Triangle Pattern Breakout and Breakdown

The pattern consists of a succession of lower tops and higher bottoms. The moment one of the trend lines is broken, the pattern is complete.

A downward breakout through the lower ascending trendline marks the beginning of a downtrend. Either as a continuation of an already existing downward long-term trend, or as a reversal signal after a previously upward long-term trend.

An upward breakout through the upper descending trend line marks the beginning of an uptrend. Either as a continuation of a pre-existing long-term rising trend, or as a reversal signal after a previous downward long-term trend.

Symmetrical Triangle Pattern breakout Symmetrical Triangle Pattern breakdown

How to trade the symmetric triangle chart pattern?

Again, there are two ways to use these breakouts or breakdowns in a trading strategy

Entry and Stoploss

The most obvious way is to enter the market as soon as the breakout actually occurs. You can either take a position during the breakout itself (1) or wait until after the confirmation, i.e. a close below or above one of the converging trend lines (2).

Symmetrical Triangle Pattern entry during or right after breakout

Obviously, the chance of a false breakout is higher if you are entering the market when the breakout is still in progress. The advantage is that if the breakout continues your entry will be better than if you wait for confirmation.

Where you place the stoploss depends very much on the way you trade, so an unequivocal answer is impossible. However, if you are a swing trader who wishes to hold positions for several days or weeks, at least try to make sure that you give the price enough room for price fluctuations. A good and objective tool is the average true range indicator which gives you a picture of the prevailing volatility and calculates the average daily movement. If you hold positions overnight, it is best to keep a minimum stopping distance of 2ATR.

You can easily check this using the position sizing tool available by default in ChartMill.

The example below shows a setup where a position will be opened if the high of the last candle is broken ($175.22) with an initial stoploss at $164.78. The PST tool indicates that in that case the stop distance is 1.9 ATR large. Because the ATR stop distance is less than 2, a warning appears.

Symmetrical Triangle Pattern stoploss atr not ok

If we keep the entry the same but lower the stoploss a bit to $164.78, the warning disappears because this brings the stop distance to 2.06 ATR.

Symmetrical Triangle Pattern stoploss atr ok

Price Target

Typically, the difference between the lowest point (A) and the highest point of the pattern (B) is used to determine the distance to the price target 'C'. Below is an example of such a target projection for Tsakos Energy Navigation Ltd. (TNP). In this case the projected price target was never reached and TNP made a huge reversal move.

Symmetrical Triangle Pattern price target basic

Another and better way to determine the price target is to take into account the stoploss used and start determining your first and possibly second target on that basis.

In the example below, the first price target and the stoploss are at equal distance from the entry which gives a risk/reward of at least 1 to 1. The second price target is situated at twice the stop distance.

If in this case you had placed the stoploss at breakeven as soon as the first target was reached then this position would eventually have been stopped out at breakeven (assuming you enter and exit with the entire position each time).

Symmetrical Triangle Pattern price target one and two

Symmetric 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.

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The ChartMill Team