The Symmetrical Triangle Pattern

The symmetrical triangle is a consolidation chart pattern that occurs when the price action trades sideways. It’s considered to be a neutral pattern, as two trend lines are converging until the intersection point. 

The purpose of this article is to look at the structure of the symmetrical triangle, what the message that the market sends through the symmetrical triangle is. Moreover, we will be sharing a basic symmetrical triangle pattern trading strategy.

The Structure of the Pattern

The symmetrical triangle pattern is a neutral chart formation. Two converging lines are moving to each other as the market makes the lower highs and the higher lows. As the space between two converging lines gets narrower, the likelihood of a strong breakout increases. 

At the beginning of a triangle, the distance between two trend lines is the longest one. The consolidation of energy from both sides occurs, which allows the price action to trade sideways for a certain period of time. 

It’s exactly this consolidation phase that is the reason why breakout/downs are usually followed by a strong volume as many traders are on the sidelines waiting for the market to decide in which direction it wants to go.

Although the symmetrical triangle is a neutral pattern, the likelihood of a breakout is stronger towards the direction of the overall trend, meaning that if the symmetrical triangle has been formed after an uptrend, the probability of a break is higher compared to a breakdown. 

Hence, we make a difference between the bullish symmetrical triangle pattern and a bearish symmetrical triangle pattern. On the left side of the picture above, we have a bullish symmetrical triangle, as the direction of the existing trend is to the upside, while the bearish symmetrical triangle is formed from the downtrend. 

In these situations, the symmetrical triangle is then classified as a continuation pattern as the triangle itself simply gives a form to the temporary pause within an overall uptrend or downtrend. 

It’s important to note that the perfectly symmetrical triangle is extremely difficult to find. At least one of the two trend lines almost always leans more than the other. For this reason, you should focus on  the message that the market is sending, rather than identifying the perfectly symmetrical triangle.

What the Symmetrical Triangle Shows Us 

The symmetrical triangle tells us that the market is currently undecided about the future direction of the price action. The higher lows and the lower highs also signal that the market seems listless in its direction. Again, the market may seem more inclined to move in the direction of the existing trend. 

Many experienced traders prefer to stay on the sidelines for as long as the market is ranging and until there is a high certainty that the breakout/down is imminent. We should always wait for the price to leave, and ultimately close, outside of the triangle to make sure that we are not dealing with a failed breakout. 

As with most forms of technical chart patterns, symmetrical triangle patterns are best used in conjunction with other technical indicators and chart formations. For this reason, experienced traders use the volume to verify the breakout/down.
Spotting the symmetrical triangle

As outlined earlier, the symmetrical triangle consists of the two converging trend lines as the price action moves sideways. It’s  important that we correctly identify the symmetrical triangle chart pattern and draw the lines precisely in order to make sure that we don’t miss out on a breakout/down. 

In a USD/CAD four-hour chart lower, we see a downtrend as the sellers push the market lower. After a recent swing high, the market starts making the lower highs, while on the other side of the market we witness the higher lows. Hence, this consolidation phase within a downtrend is formed within the symmetrical triangle.

Spotting the Symmetrical Triangle

As outlined earlier, the symmetrical triangle consists of the two converging trend lines as the price action moves sideways. It’s  important that we correctly identify the symmetrical triangle chart pattern and draw the lines precisely in order to make sure that we don’t miss out on a breakout/down. 

In a USD/CAD four-hour chart lower, we see a downtrend as the sellers push the market lower. After a recent swing high, the market starts making the lower highs, while on the other side of the market we witness the higher lows. Hence, this consolidation phase within a downtrend is formed within the symmetrical triangle.

The consolidation phase is marked by multiple tagging of the two trend lines on both sides, as the buyers and sellers attempt to break the triangle. Finally, the sellers are able to push the price action below the triangle as two converging lines almost touched. In this example, the symmetrical triangle acts like a continuation pattern that simply helps to extend the downtrend further lower.

Trading the Symmetrical Triangle Pattern

Once we have identified the symmetrical triangle pattern on a chart, we are waiting for a breakout/down to occur. Similar to other breakouts/downs, there are two options to enter a trade. First, you can enter into the market as soon as the candle on a high time frame chart (at least 4H) closes above or below the triangle.

Secondly, you can opt to wait for the price action to break the triangle and then return to retest the broken trend line. This option gives you a better entry as you can use the opportunity to enter the trade exactly at the retest. On the other hand, its limitation lies in the fact that you may never get the opportunity to enter a trade as the retest isn’t guaranteed to happen. 

The advantage of the first option is that you can’t miss out on a trade, as you are in as soon as the candle closes above/below the trend line. However, the close may occur far away from the trend line, which means that your take profit window has narrowed, while the amount of pips you are risking has increased. 

In this particular example, we see that the price action returned higher to retest the supporting trend line after the breakdown. In the end, both options were on the table for us to choose from. In order to be sure that we have the opportunity to capitalize on the breakout, we decided to enter into the market once the H4 candle closed below the triangle’s supporting line (the black line).

The stop loss order is placed within the body of a triangle as any return to the inside invalidates the pattern. You can also put the stop loss order above the resisting trend line when the breakout occurs near the end of a wedge i.e. when the distance between two trend lines is very short. 

The vertical blue line measures the distance between the two trend lines at the start of a triangle, and by copy-pasting it from the start of a move that resulted in a breakdown, you will determine the take profit level.

The breakdown extended lower, and the lowest point of the downtrend almost touched our take profit order. This is a good example to show that you should always leave some room for the market to maneuver in the context of the take profit and stop loss. Ultimately, we booked around 250 pips by risking 100 pips i.e. 1:2.5 risk-reward ratio.