Triangles can be considered to be the celebrity of all chart patterns because they appear a lot on many dance floors, but unfortunately, they are the least reliable (are you wondering why?). Still, we need to add them to our analysis tools but be cautious about them because they happen a lot.
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There are different types of triangles: symmetrical triangles, ascending triangles, and descending triangles.
Symmetrical Triangles – Pizza Metaphor
Yum! A symmetrical triangle is often a continuation pattern that forms during a trend. The pattern contains at least two lower highs and two higher lows— a series of two or more zigzags in which each succeeding peak is lower than the one before it, and the bottom of each succeeding reaction is higher than the one before it. When these points are connected in a trend line, the lines get closer to each other as the pair moves forward with time. The two lines finally reach each other and kiss. This is how a brand new symmetrical triangle is born.
The reason this happens is that neither the buyers nor the sellers are able push the pair in their direction. After one side gives up, we can expect a breakout. Symmetrical triangles can be the opening of an important reversal too, but more often than not the pair continues in its old direction after the formation of the triangle is completed.
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As the lines of the triangle get closer to each other, we get more excited, waiting for an explosion of the price action. We want to make sure which direction the price is going to shoot in, so that we can take advantage of it and make a smart entry.
So how do we do this?
One thing we can do is wait for a breakout (while being cautious of a false breakout), then ride in the new direction and place an order. Triangles seem to work best when the pair breaks out somewhere between half and three-fourths of the distance between the widest zigzag of the price movement and the apex of the triangle.
Symmetrical Triangles Shape
Here is an example of an symmetrical triangle continuation pattern in action.
Symmetrical Triangles – Chart Pattern Example
Symmetrical Triangle Continuation Pattern Formed on Dollar – Swissy 4Hour Chart, February 2012
A Story of a Pair Dancing in a Symmetrical Triangle
Once upon a time, a certain currency pair was dancing on a down-trend when it drifted into a symmetrical triangle at point A and its dancing range began to contract.
Symmetrical Triangles – Pause During a Down Trend
Story of a Pair Trapped in a Symmetrical Triangle
Trend lines were formed over the next two months (A–C and B–D), and the pair was trapped in between them. One day the pair broke through the resistance trend line at point E, pushing for a trend reversal, but it failed right away. It was a false breakout. Some traders who got too excited too soon and didn’t wait for the day’s close for the breakout confirmation got fooled and lost money. The following day, after point E, the pair’s price opened below the trend line. This was a confirmation that the previous day’s signal had been a false breakout. Now many patient and wise traders who hadn’t placed an order the previous day were making fun of the ones who had done so. Subsequently, the pair broke through the triangle at point F with strong volume accompanying the sell-off, which helped confirm the symmetrical triangle as a trend continuation pattern. The pair continued dancing on a downtrend, and the traders who were familiar with this pattern made some dough.
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