Symmetrical Triangle Chart Pattern
A symmetrical triangle chart pattern can be categorized as both a continuation pattern and a reversal pattern. A continuation pattern means that the trend that was in place prior to the start of the symmetrical triangle will continue after the symmetrical triangle has completed development.
- Bullish Reversal Symmetrical Triangle
- Develops at the bottom of a downtrend
- The breakout from this pattern is to the upside and significant price increases are typically expected
- From an Elliott wave perspective, this chart pattern develops in Wave 1 of a Bullish Impulse wave pattern
- Develops at the bottom of a downtrend
- Bullish Continuation Symmetrical Triangle
- Develops at the top of an uptrend
- The breakout is to the upside with limited upside price increases expected
- From an Elliott wave perspective, this chart pattern develops in Wave 4 of a Bullish Impulse wave pattern
- Develops at the top of an uptrend
- Bearish Reversal Symmetrical Triangle
- Develops at the top of an uptrend
- The breakout from this pattern is to the downside and significant price drops are expected
- From an Elliott wave perspective, this chart pattern develops in Wave 1 of a Bearish Impulse wave pattern
- Develops at the top of an uptrend
- Bearish Continuation Symmetrical Triangle
- Develops at the top of an uptrend
- The breakout from this pattern is to the downside and it almost always creates a final round of heavy selling
- Wait for capitulating selling volume before trying to enter into a long position or trying to “catch the bottom”
- Using a 2nd or even a 3rd method of confirmation is recommended when trying to “catch the bottom”
- Wait for capitulating selling volume before trying to enter into a long position or trying to “catch the bottom”
- From an Elliott Wave perspective, this pattern typically develops in Wave 4 of a Bearish Impulse wave pattern
- Develops at the top of an uptrend
Because of their flexibility, correctly predicting whether the triangle is a continuation or a reversal pattern can make a big difference on your profits on the next move. Or will it? The impact is lessened when a scale-out strategy is used.
When a Symmetrical Triangle chart pattern develops, rather than trying to determine if it will be a continuation or a reversal pattern, the less risky strategy is to begin a scale-out strategy of beginning to sell shares into any strength.
Requirements
Characteristics & Observations
Breakout Area
Trading Strategies
Real Chart Examples
Bullish Reversal Symmetrical Triangle
Here is an example of a symmetrical triangle classified as a bullish reversal pattern (meaning that it reversed the bearish trend that was in place prior to the development of the symmetrical triangle). The below chart is a 6 month daily candlestick chart and is for Deckers Outdoor Corporation (DECK) – the maker of UGG boots.
DECK is currently in the process of forming a bullish reversal symmetrical triangle, but it is not yet complete in its development as it does not have enough touches to the upper trendline; symmetry is preferred for this pattern type. So where is the next projected move from here? Back to the upper trendline of the developing chart pattern.
Did you notice the increased volume as the share price is rising for DECK and then the decreasing volume as the share price is falling? These are indicators that the breakout is going to be to the upside as the selling pressure seems to be drying up as the share price decreases. Consider using a MACD Histogram indicator on the chart to confirm that selling momentum is actually decreasing.
Heavier than normal buying volume is a key indicator during an attempted upside breakout. Breakouts that do not occur on heavier than normal volume may a bull trap. Bull traps can be identified either by breakouts that occur on weak or weaker than normal buying volume, or by buying volume that decreases over a couple of day period as the breakout is developing. A combination of both is most definitely a bull trap.
3 Days Later…
So here is DECK’s chart a few days later……the bottom trendline of the symmetrical triangle was not breached and acted as a supporting trendline. Also take notice of how the stock closed at the same high of a long green candlestick from a few days prior – the top of these two candlesticks should provide a decent support area at a later date……..like after an upside breakout on heavier than normal volume and then a subsequent pullback on light selling volume to “re-test” the breakout area and make sure there is buying support there.
8 Additional Days Later – Attempted Upside Breakout
As you will see on the next chart, DECK rebounded back to the top of the triangle and then back to the bottom one more time before finally attempting to breakout. Notice the nice symmetry in the formation of this triangle before the breakout.
This attempted upside breakout lead to excellent returns if you were able to sit through some of the volatility during the final development stages of the chart pattern; this breakout lead to even better returns if you were able to identify the chart pattern early and purchase shares near the supporting lower trendline.
During the week of September 22, 2014, approximately 1.5 years after breaking out of this bullish reversal symmetrical chart pattern, DECK’s share price reached a high of $98.80.
