Symmetrical triangle patterns

We've looked at reversal patterns (head and shoulders pattern and inverse head and shoulders pattern). In this lesson, we cover continuation patterns, specifically the symmetrical triangle pattern.

What is a continuation pattern?

A continuation pattern forms during a trend and suggests that the trend is likely to continue in the same direction. These patterns represent a temporary pause in the market before the original trend resumes.

A triangle pattern typically forms when price action pauses during a trend. To draw a triangle, you need at least:

• Two lower highs (resistance points)
• Two higher lows (support points)

These lines taper inwards toward a central point known as the apex, forming the triangle.

If this pattern appears after an uptrend, the suggestion is that the market is taking a breather before continuing higher. If it forms after a downtrend, it typically points to a continuation of that move lower.

There are three types of triangle patterns: symmetrical triangle, ascending triangle and descending triangle. We'll cover symmetrical triangles here. Read more about the other triangle chart patterns here.

What is a symmetrical triangle pattern?

A symmetrical triangle forms when the price of an asset creates a series of lower highs and higher lows, resulting in two converging trendlines that resemble a triangle.

Key characteristics of symmetrical triangles include:

• A period of consolidation (sideways price movement) or indecision in the market
• Occurrence in both uptrends and downtrends
• Decreasing volume as the pattern develops

Symmetrical triangles are considered continuation patterns. That means traders typically wait for a breakout — when price moves decisively above or below the triangle — as a confirmation signal before making trading decisions.

Identifying symmetrical triangles in uptrends

When a symmetrical triangle forms during an uptrend, it's seen as a bullish continuation pattern. This means that the preceding uptrend is expected to resume after the pattern's occurrence.

To identify and interpret these patterns:

1. Look for a significant price increase preceding the pattern
2. Observe a series of lower highs and higher lows forming the triangle
3. Watch for a breakout above the upper trendline, confirming the continuation

Tip: Traders should be cautious of false breakouts and may use volume as a confirmation tool. During the formation of the triangle, volume tends to taper off, reflecting the market’s “pause”. At the breakout, you ideally want to see a surge in volume.

Trading symmetrical triangles in uptrends

To trade symmetrical triangles in uptrends, traders will:

1. Identify the pattern after a significant upward price movement
2. Wait for a breakout above the upper trendline
3. Enter a long position when the price closes above the upper trendline
4. Place a stop-loss just below the breakout point or the last significant low
5. Set a price target by projecting the triangle's height from the breakout point

Tip: To set targets, use the proportional projection method. Measure the height of the triangle at its widest point and project that distance from the breakout point in the direction of the breakout. This method can be used in both rising and falling markets.

Remember (we say this every lesson because it bears repeating!), proper risk management is crucial. Always use stop-losses and consider the overall market conditions before entering a trade.

Recognising symmetrical triangles in downtrends

Symmetrical triangles can also form during downtrends, acting as bearish continuation patterns. Here's how to spot them:

1. Identify a significant price decrease before the pattern emerges
2. Look for a series of lower highs and higher lows forming the triangle
3. Watch for a breakout below the lower trendline, confirming the continuation

As with uptrends, it's essential to wait for confirmation and volume can be used as a validation tool. False breakouts can occur in both directions, so patience is key.

Trading symmetrical triangles in downtrends

To trade symmetrical triangles effectively in downtrends, traders will:

1. Identify the pattern after a significant downward price movement
2. Wait for a breakout below the lower trendline
3. Enter a short position when the price closes below the lower trendline
4. Place a stop-loss just above the breakout point or the last significant high
5. Set a price target by projecting the triangle's height downward from the breakout point (in the same way described above)

Common mistakes to avoid

To improve your success rate when trading symmetrical triangles, avoid these common pitfalls:

Assuming the breakout direction based solely on the prior trend
While symmetrical triangles often act as continuation patterns, they can also result in a reversal. Don't assume the price will break out in the same direction as the trend leading into the pattern. Always wait for confirmation.

Entering a trade before a confirmed breakout
It's tempting to anticipate the breakout and enter early, especially when price is nearing the apex. But premature entries increase your risk of being caught in a false breakout or continued consolidation. Patience is a key aspect of successful trading.

Overlooking broader market conditions and other technical indicators
A triangle pattern doesn't exist in a vacuum. Broader market sentiment, news events, and other technical signals (like volume, RSI, or moving averages) can help confirm whether a breakout is likely to succeed or fail.

Neglecting risk management and proper position sizing
Even a textbook breakout can fail. That's why it's crucial to manage risk. Use stop-losses and size positions appropriately.

Getting started trading symmetrical triangle patterns

One of the core principles of technical analysis is that patterns reoccur. Triangle patterns are a great example. You'll see them again and again in the markets. Learn to spot them, practise drawing them, and use them alongside other technical tools to support your trading decisions.

The best way to get first-hand experience without risking real money is to practise in a demo trading account.

In the next lesson, we look at moving averages and trend trading.