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.