Symmetrical Triangles - Using Them to Spot Big Profitable Moves
Symmetrical triangles are highly reliable trading patterns and are normally pauses within major trends.
Prices normally break in the direction of the trend and move strongly, although a break in the opposite direction can be just as effective.
What is a symmetrical triangle?
The symmetrical triangle is often referred to as a coil, usually forms during a trend as a continuation pattern.
The symmetrical triangle contains at least two lower highs and two higher lows.
When the lines are drawn and connected up the symmetrical triangle takes shape and comes to a point.
Generally, the longer the pattern takes to form the more valid it is.
Why do they form?
Symmetrical triangles can be seen as areas of indecision by the participants.
Typically, the forces of supply and demand at that moment are considered in balance, with neither the bulls nor bears being able to take control.
Attempts to push higher are met by selling, while dips are seen as buying opportunities.
Each new lower top and higher bottom becomes narrower than the last one.
This gives the triangle its shape of a sideways coil.
Eventually, indecision about market is met with a new strong move as prices break either up, or down from the triangle.
Research has shown that symmetrical triangles normally resolve themselves in the direction of the major trend and are seen as continuation pattern.
Watching the break
You should not just trade symmetrical triangles without using some filters.
Ones to look for are the stochastic momentum that measures short term price strength.
It's the most effective timing indicator there is and is discussed fully in other articles we have written.
The best signal is the stochastic turning bullish or bearish by a cross of the lines in the direction of the break with bullish or bearish divergence. In all case lines should point up for a break to the upside or down for a bearish break.
You should also look for the RSI to strengthen (on a break to the upside) or weaken (on a break to the downside)
There is normally a pick up in trading volume once prices start to break.
A great formation to spot explosive moves
The symmetrical triangle is a great formation and breaks can be dramatic.
To weed out "false breaks" make sure you use some filters (like the ones discussed above) to decide whether to take the trade or not.
Of all the continuation patterns we find this one the most effective and reliable and it can offer some great high odds profitable trades once the break occurs.
Related Tags: techncial analysis, symmetrical triangle, continuation patterns, techncial analysis forex markets
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