In recent years their has been a move away from simple chart formations to more complex forms of trading and price led indicators, but there are numerous great chart patterns to trade and here we are going to look at one of the best – the symmetrical triangle.
This is a formation is one all traders should look out for and trading it is easy and can be very profitable. Let’s take a look at it.
The symmetrical triangle usually forms during a trend as a continuation pattern – the pattern contains at least two lower highs and two higher lows.
When these points are connected together, the lines converge as they are extended and the symmetrical triangle takes shape on the forex chart and is wide at the start and narrows over time.
Why They Occur
symmetrical triangles are areas of indecision by market participants, typically the forces of supply and demand are fairly equal and in synch and a previous trend pauses.
Attempts to push higher are quickly met by selling, while dips are met by buying.
Each new lower top and higher bottom becomes more shallow than the previous giving it the shape of a sideways triangle.
Eventually the sideways pattern changes and is met with decisive buying or selling and prices breakout of the formation.
Using symmetrical triangles
1. Trend Direction
To qualify as a continuation pattern, an established trend should already exist and the trend should be at least 3 months old.
At least 2 points are required to form a trend line and 2 trend lines are required to form a symmetrical triangle.
4 points are required to define a formation as a symmetrical triangle. The second high (2) should be lower than the first (1) and the upper line should slope down.
The second low (2) should be higher than the first (1) and the lower line should slope up.
The longer the triangle takes to form and the more times it is tested the more valid it tends to be.
If the pattern is less than 3 weeks, it is normally considered to be a pennant ,so you are looking at 1 – 3 months as typical durations.
Trading the Break
Now you know what a symmetrical triangle is, its time to look at how to trade them and the breakout that will inevitably come.
1. Wait for the breakout
While most breakouts of symmetrical triangles are normally in the direction of the trend not all are – so wait for confirmation before trading.
Don’t be tempted to predict a break – wait.
For a break to be considered valid, it should be on a closing basis only.
It is also a good idea to check that price momentum is strong using a confirming momentum indicator such as the stochastic or Relative strength index to add an additional filter.
So there you have it a quick guide to trading one of the best chart patterns – look out for them and use the above tips to trade and hopefully they will help you pile up some nice forex profits.