The Symmetrical Triangle Trading Strategy: Step By Step Instructions
If you like price geometry, nothing beats the Symmetrical Triangle trading strategy. How about geometry and drawing shapes like lines and triangles? Well, you’re in for a treat. Our
Triangle Breakout will give you some simple tools to help you become a better trader.
In fact this strategy was one of the most important factors in getting some of the traders on our team to the level of success that they are at now. It is a funny story because one of our traders accidentally discovered this while working on something completely different. This goes to show you that anything can happen as long as you stay persistent. He stumbled on a forex triangle pattern and once we realized that it works in forex we came to understand that it works in every trading market.
One important thing to realize when searching for triangle patterns or when you first begin to use triangle pattern trading is that it doesn’t matter if you are using a bullish triangle or a breakout triangle it still is an effective method to trade the market. If you have the right system and strategy to make it work and you are disciplined enough to follow the rules.
Our team at Trading Strategy Guides is working hard to put together the most comprehensive guide to different chart pattern strategies. In order to understand the psychology of a chart pattern, please start here: Chart Pattern Trading Strategy step-by-step Guide.
This triangle pattern can appear throughout any market and its popularity is notable with all types of traders who trade on any time frame.
The first thing you need to know about triangles is that they are a form of support and resistance. You can learn more about the topic of support and resistance here: Support and Resistance: What Is Going On At These Critical Areas.
This is a volatile pattern that encompasses a wide-ranging market, and it becomes progressively tighter as the pattern approaches its endpoint.
Moving forward, we’re going to discuss this pattern in greater detail and lay down a few notes about the psychology behind the triangle breakout.
What is a Symmetrical Triangle Pattern?
In technical analysis, it’s one of the most popular triangle price formations that falls under the category of continuation patterns. However, as the name suggests, it can be traded both ways.
The price action needs to move in a series of lower highs and higher lows in order to be able to define a triangle.
In terms of its characteristics, you need only look for two things:
- An ascending bottom trendline that goes in the upwards direction.
- A descending top trendline that goes in the downward direction.
It can be drawn simply by connecting the swing high/low with two sloping lines that will converge at some point in the future, making the break inevitable.
You need a minimum of two hits on each trendline in order to draw the pattern. As long as this criterion is met, it can be defined as a triangle pattern.
Now, keep in mind that the symmetrical triangle is a neutral chart formation and it can break in both directions.
Note* When we finally break from the Symmetrical Triangle pattern, the following move needs to be very violent and fast moving.
Here is a real example:
The Psychology behind the Symmetrical Triangle Pattern
Basically, what’s happening here is the buyers and sellers are at a draw with each other.
With no clear trend forming, it will keep squeezing smaller and smaller, following the trend lines.
Think of it as a tug of war between the buyers and sellers.
As the two lines get closer and closer together, it’s evident that something will have to give. Whoever wins the battle will be who you want to catch a ride with by entering a buy or a sell.
The only real challenge with triangle patterns is identifying the real triangle pattern breakout and having enough confidence to hold the trade until the minimum target has been reached.
Now, let’s see how you can effectively trade with the Price Channel trading strategy and how to make profits from basically using no technical indicator.
Symmetrical Triangle Strategy – Buy Rules
The Symmetrical trading strategy will help you increase your account balance quite rapidly. You simply have to employ this step-by-step guide on triangle trading to make sure you’re correctly reading the information given by the classical Symmetrical Triangle Geometry Pattern.
Moving forward, we present the sell-side rules:
Step#1 Identify at least two lower highs and two higher lows and draw a Symmetrical Triangle pattern by connecting these swing points.
It should be pretty easy to draw this pattern.
Just connect at least two higher lows with an ascending trendline.
Repeat the same process with at least two lower highs using a descending trendline.
Note* Make sure you extend the triangle lines to the right of the chart until they converge.
Step#2 Check to see if the prevailing trend is moving upwards
The pattern works best when used as a continuation pattern. This means that before the symmetrical triangle pattern forms we need to have a prior trend (bullish).
The prevailing trend prior to the ascending triangle chart pattern can provide a clue about the triangle breakout direction. For high probability setups we encourage you to only trade this in the direction of the prevailing trend.
The Symmetrical Triangle is more bullish if it’s formed within an uptrend.
When this breakout happens it will attract many other people to the “party.”
So far, so good.
Now we need to define our entry technique, which brings us to the third step of this strategy.
Step#3 Wait for the Triangle breakout and BUY only after the breakout candle closes above the descending trendline.
We treat this breakout with caution, which is why we wait for price confirmation in the form of the breakout candle closing above the Symmetrical triangle pattern.
You will benefit greatly by waiting for the breakout candle to close above the pattern. This will prevent you from taking unnecessary risk and you’ll avoid many of the false breakouts.
Often times people will place pending orders above and below the Symmetrical pattern in anticipation of a breakout chart pattern; this is a trap and is one of the reasons the false breakout happens.
We want to avoid that!
Note* The best time to enter any kind of triangle is when the price has broken and closed above the upside trendline – in the case of a bullish breakout – or when the price has broken and closed below the downside trendline, in the case of a bearish breakout.
The next logical thing we need to establish for the Price Channel trading strategy is where to take profits.
Step#4 Take Profit 1 at the at the same price distance as the Triangle Height, Take Profit 2 at 2xTriangle Height
The textbook profit target for any type of triangle is the height of the triangle projected in the direction of the breakout from the breakout point.
Now you might be asking yourself, “What is the triangle height?”
We need to work with the triangle parameters to calculate the triangle pattern height. By measuring the distance between the highest point formed within the Symmetrical Triangle and its lowest point, we obtain the triangle height.
So, the triangle height can be obtained by simply measuring the price distance from the highest to the lowest price point within the triangle formation.
To measure a profit target from the triangle shape pattern you simply take the triangle height and project that from the breakout point.
The ascending triangle chart pattern employs multiple entry techniques.
The first take profit comes at the same price distance as the triangle height, and because we have found that there is more often a high probability of much bigger movement generated by the breakout, we have a second profit target at 2 x triangle height.
The next important thing we need to establish is where to place your protective stop loss.
Step #5: Place the protective stop loss below the swing low prior to the Triangle Breakout
A common approach is to hide your protective stop loss just below the last swing low prior to the breakout.
You can use different stop loss techniques as well, like placing the SL below.
Note*** The above was an example of a BUY trade… Use the same rules – but in reverse – for a SELL trade. In the figure below, you can see an actual BUY trade example, using the Price Channel trading strategy.
The Symmetrical Triangle trading strategy is one of the most proficient ways to trade consolidations because the triangle pattern generally occurs during ranging periods. Generally, we draw the triangle pattern to highlight these ranging areas.
You can very easily capitalize on this simple trading pattern by following our step-by-step guide presented throughout this article.
When trading Symmetrical Triangle pattern, it’s worth to keep in mind that sometimes these chart patterns can simply continue to move sideways and emerge into a consolidating market.
Thank you for reading!
Make sure to continue checking out TSG website for further educational Chart Pattern strategies.