What it means
On a price chart, a symmetrical triangle forms when sellers push each rally to a lower high and buyers lift each dip to a higher low. The upper trendline slopes down and the lower trendline slopes up, meeting at a point called the apex.
The narrowing range shows that neither side is winning. The pattern is usually seen as a continuation pattern, meaning the price tends to break out in the direction of the trend that came before it.
It is not a guarantee, however, and breakouts can go either way. That is why traders wait for the price to close beyond one of the trendlines before acting.
Volume (the number of shares traded) tends to fall as the triangle develops and then rise on the breakout. A breakout on high volume is considered more reliable than one on weak volume.
False breakouts, where the price pokes through a line and then reverses, are common enough that most traders place a stop-loss order just inside the pattern. A standard way to set a price target is to measure the height of the triangle at its widest point and project it from the breakout level.
The method is a rule of thumb rather than a forecast. Many traders also look for breakouts to occur somewhere between half and three quarters of the way to the apex, as later breakouts tend to be less meaningful.
For non-specialists, the pattern is useful as a signal of tension in the market. A long period of narrowing prices often precedes a larger move, so businesses with exposure to commodities or currencies may want hedges in place before it resolves.
Not every narrowing pattern is a true symmetrical triangle, so a few checks are worth making before relying on it. The pattern should have at least two touches on each trendline, which means two lower highs and two higher lows.
It should also develop over a reasonable number of weeks, since a pattern formed over a few days says much less than one built over a couple of months.
In practice
Real-world examples.
Example
A stock rises from $30 to $50, then trades in a tightening range for six weeks. The analyst marks a symmetrical triangle and waits for a close above the upper line before buying, since the earlier trend was upwards.
Example
An airline's treasurer watches the oil price form a symmetrical triangle after a long rally. She buys call options as a hedge, expecting the breakout to bring volatile fuel costs either way.
Example
A currency trader sees the euro-dollar rate contract into a triangle. He reduces his position size ahead of an expected breakout and sets alerts just outside each trendline.
Formula
Calculation
Price target = Breakout price +/- Height of the triangle at its widest point
Suppose a share forms a symmetrical triangle with a first high of $60 and a first low of $50 at the widest point.
Height = $60 - $50 = $10
The price later breaks upwards through the upper trendline at $56.
Upside target = $56 + $10 = $66
If instead the price had broken downwards through the lower trendline at $54, the downside target would be $54 - $10 = $44.
A trader buying at $56 with a stop at $53 risks $3 per share to gain a possible $10, a reward-to-risk ratio of $10 / $3 = 3.3.Case study
Seen in the real world.
Atlas Grain Trading is an illustrative, fictional company that buys wheat for flour mills and watches charts to time its purchases. Over two months, the wheat price formed a symmetrical triangle between $6.80 and $5.90 per bushel.
The head trader noted that the trend before the pattern was upwards, but he did not want to guess. He set an order to buy 100,000 bushels if the price closed above $6.40 and a stop at $6.15.
In the illustrative outcome the price broke out through $6.40 on heavy volume and climbed to around $7.30, close to the projected $0.90 move. The company bought before the surge, and the purchase saved it about $80,000 compared with buying after the move at roughly $7.20.
Watch out
Common mistakes.
- Assuming the breakout will always follow the prior trend, when symmetrical triangles can break in either direction.
- Buying inside the pattern before a confirmed breakout.
- Ignoring volume, which helps to separate genuine breakouts from false ones.
Questions
People also ask.
What is the apex of a triangle?
It is the point where the two trendlines would meet, and the closer the price gets to it, the less reliable a breakout becomes.
How is a symmetrical triangle different from an ascending triangle?
An ascending triangle has a flat top and rising bottom and tends to break upwards, while a symmetrical triangle has both lines sloping towards each other.
Do these patterns work in every market?
They appear in shares, currencies and commodities, but they are a guide to probabilities, not a reliable predictor.
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