The Symmetrical Triangle : Continuation Pattern
The Symmetrical Triangle
The symmetrical triangle (or coil) pattern normally occurs during a trend as a continuation pattern. It is essentially a coin flip as to which direction price will exit if it is truly a Symmetrical Triangle. The triangle includes at least two higher lows and two lower highs. Essentially, the trading range becomes smaller and smaller within the triangle.
IDENTIFICATION GUIDELINES
1. The Shape of The Symmetrical Triangle – Two price trendlines, the upper one sloping downwards and the lower one sloping upwards so they intersect at the triangle apex. The trendlines need not be of the same length.
2. Formation of The Symmetrical Triangle – There should be two minor swing highs and two minor swing lows touching the trendlines.
3. Duration of The Symmetrical Triangle- A minimum duration of 3 weeks and it rarely exceeds 3 or 4 months long. Anything less than 3 weeks of duration likely to be a pennant formation, not a symmetrical triangle.
4. Volume inside The Symmetrical Triangle – Volumes tends to be decreasing through the formation. Often very low just before the breakout.
5. Pre-mature or False Breakout – Because volume is usually low in during the formation, it takes very little activity to bring about an erratic and false movement in price, talking the price outside of trendlines.
6. Breakout – Price closing below the lower rising trendline confirms the breakout or Price closing above the upper falling trendline confirms the breakout.
HOW TO TRADE THE SYMMETRICAL TRIANGLES
Trading Rules.
1. Entry – The direction of the break in the pattern can only be confirmed after the break has happened. Either Up or Down.
Buy: Buy the Stock a day after Price closing above the upper falling trendline.
Sell: Sell or short the stock day after Prices closing below the lower rising trendline.
2. Price Target – The technical price target is to measure the widest distance of the symmetrical triangle, Add the distance to the upper trendline breakout price for a buy target or Subtract the distance from a lower trendline breakout price for obtaining a covering price.
3. Taking Profit – For short-term traders, cover short or sell the stock when the price reaches near to the minimum price target computed in step 2. For intermediate and long-term traders, hold the stock as per your risk & capital management applied before entering into a trade.
4. Stoploss – usually, price closing above falling upper trendline is a Sell Stoploss Or price closing below rising bottom trendline is a buying stop loss. But very often, The gap between breakout price and trendlines is very wide. So it won’t be suitable for a good risk-reward ratio. Without a Good Risk to Reward ratio in trading or investing can never create wealth.
The symmetrical triangle (or coil) pattern normally occurs during a trend as a continuation pattern. It is essentially a coin flip as to which direction price will exit if it is truly a Symmetrical Triangle. The triangle includes at least two higher lows and two lower highs. Essentially, the trading range becomes smaller and smaller within the triangle.
IDENTIFICATION GUIDELINES
1. The Shape of The Symmetrical Triangle – Two price trendlines, the upper one sloping downwards and the lower one sloping upwards so they intersect at the triangle apex. The trendlines need not be of the same length.
2. Formation of The Symmetrical Triangle – There should be two minor swing highs and two minor swing lows touching the trendlines.
3. Duration of The Symmetrical Triangle- A minimum duration of 3 weeks and it rarely exceeds 3 or 4 months long. Anything less than 3 weeks of duration likely to be a pennant formation, not a symmetrical triangle.
4. Volume inside The Symmetrical Triangle – Volumes tends to be decreasing through the formation. Often very low just before the breakout.
5. Pre-mature or False Breakout – Because volume is usually low in during the formation, it takes very little activity to bring about an erratic and false movement in price, talking the price outside of trendlines.
6. Breakout – Price closing below the lower rising trendline confirms the breakout or Price closing above the upper falling trendline confirms the breakout.
HOW TO TRADE THE SYMMETRICAL TRIANGLES
Trading Rules.
1. Entry – The direction of the break in the pattern can only be confirmed after the break has happened. Either Up or Down.
Buy: Buy the Stock a day after Price closing above the upper falling trendline.
Sell: Sell or short the stock day after Prices closing below the lower rising trendline.
2. Price Target – The technical price target is to measure the widest distance of the symmetrical triangle, Add the distance to the upper trendline breakout price for a buy target or Subtract the distance from a lower trendline breakout price for obtaining a covering price.
3. Taking Profit – For short-term traders, cover short or sell the stock when the price reaches near to the minimum price target computed in step 2. For intermediate and long-term traders, hold the stock as per your risk & capital management applied before entering into a trade.
4. Stoploss – usually, price closing above falling upper trendline is a Sell Stoploss Or price closing below rising bottom trendline is a buying stop loss. But very often, The gap between breakout price and trendlines is very wide. So it won’t be suitable for a good risk-reward ratio. Without a Good Risk to Reward ratio in trading or investing can never create wealth.
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