Symmetrical triangle pattern

A symmetrical triangle pattern is a period of shrinking swings. Sellers come in a little earlier on every rally and buyers come in a little earlier on every dip. The range gets narrower, volume usually falls, and at some point one side gives up.

The two lines slope at about the same angle in opposite directions, which gives the pattern its name. The point where they would meet is called the apex.

• A trend before the pattern. The triangle is a pause, so there has to be a move to pause.
• At least two lower highs and two higher lows. Fewer than four touches do not define two lines.
• An upper line that falls and a lower line that rises. If one of them is flat, it is an ascending or descending triangle.
• Price fills the pattern. It swings from line to line without large empty areas.
• Volume fades as the range narrows.
• A breakout before the apex. Traders give most weight to a close outside the lines somewhere between half and three quarters of the way to the apex. A move from the very tip often lacks force.
• Draw the lines with the trend line tool through the highs and through the lows. Use candle wicks or closes, but be consistent.

By itself, neither. The shape shows balance, not direction. Classic technical analysis treats it as a continuation pattern: more often than not price leaves the triangle in the direction of the trend that came before it. A break against the trend also happens, and then the triangle marks a reversal.

The practical rule is to let the market choose. A close above the upper line is read as bullish, a close below the lower line as bearish.

• Entry – on a candle that closes outside the triangle. A more conservative entry waits for price to come back to the broken line and hold it.
• Stop – on the other side of the pattern: below the last swing low inside the triangle for a long trade, above the last swing high for a short trade.
• Target – measure the height of the triangle at its widest part and project it from the breakout price. A first high at 80 and a first low at 56 give a height of 24; a breakout near 70 gives a measured target of 94. It is an estimate, not a level price has to reach.
• Failed breakout – a close back inside the triangle soon after the break is a warning. Many traders exit there and do not wait for the stop.
• Position size – set it from the distance between the entry and the stop. See risk-reward ratio.

• Symmetrical triangle – a falling upper line and a rising lower line. No built-in direction.
• Ascending triangle – a flat upper line and a rising lower line. Buyers are pressing into resistance, and the pattern is read as bullish.
• Descending triangle – a falling upper line and a flat lower line. Sellers are pressing into support, and the pattern is read as bearish.

A pennant has the same shape on a smaller scale. It follows a steep, almost vertical move, lasts days to a few weeks on a daily chart and is measured by the length of that move. A symmetrical triangle is larger, takes weeks to months and is measured by its own height. A wedge differs from both: its two lines slope in the same direction.

• Guessing the direction and entering inside the pattern – the triangle gives no edge until it breaks.
• Acting on a wick through the line – wait for the close.
• Trading a breakout at the apex – by then the range is so small that any candle crosses a line.
• Forcing the lines – if they only fit after ignoring several highs or lows, the pattern is not there.
• Forgetting the higher timeframe – a breakout straight into strong support or resistance has little room to run.