In technical analysis, a symmetrical triangle is one of the most popular tools traders use to analyse a price direction. It’s a bilateral formation, meaning it provides buy and sell signals. This is the biggest challenge for traders. In this FXOpen article, we will try to explain how to read and use the symmetrical triangle formation.

What Is a Symmetrical Triangle Pattern in Trading?

A symmetrical triangle is a chart pattern that relates to the triangle group, which also includes ascending and descending triangles. It’s a bilateral formation, so it may signal a fall or rise in the price.

Moreover, as with ascending and descending triangles, it can occur in an uptrend and downtrend and reflect a potential trend reversal or continuation. Still, according to the work Technical Analysis of Stock Trends by Robert D. Edwards and John Magee, in 75% of cases, the triangle is a continuation signal. Therefore, it can be assumed that a bullish symmetrical triangle pattern occurs in an uptrend, while a bearish symmetrical triangle pattern appears in a downtrend.

The triangle consists of two sloping trendlines – the upper line connects at least two lower highs, while the lower line goes through at least two higher lows. Like ascending and descending triangles, the symmetrical formation appears in market consolidation periods.

The formation can be found on any timeframe of any asset. That is, there are symmetrical triangles in stock, commodity, cryptocurrency*, and forex markets. The triangle forms from several minutes to several months, depending on the timeframe.

Descending, Ascending, and Symmetrical Triangles: The Differences

Ascending, descending, and symmetrical triangles comprise a group of triangle formations. Each of them may reflect a trend continuation and reversal. The main difference is the signals they provide. The ascending triangle is bullish, and it reflects only a price rise. The descending triangle is bearish, and it signals only a price fall. The symmetrical triangle in trading can be both bullish and bearish.

To distinguish between them, a trader needs to draw trendlines.

• In an ascending formation, the upper line is horizontal, and the lower line is angled up, connecting higher lows.
• In a descending formation, the upper boundary is angled down and connects lower highs, and the lower boundary is horizontal.
• In a symmetrical formation, the upper boundary falls while the lower rises.

How Can You Trade the Symmetrical Triangle?

Most chart patterns have specific entry and exit rules, and the symmetrical triangle is no exception. Still, traders should remember that these rules don’t guarantee an effective trade. Therefore, many traders modify them to suit their trading approaches.

Use the TickTrader trading platform to develop your own rules for triangle trading.

The rules below suit long and short trades.

Entry

The idea of any triangle is to enter the market on a breakout. As the symmetrical triangle provides buy and sell signals, a trader waits for a symmetrical triangle breakout of either trendline. Let’s remember that, more often, this setup appears ahead of the trend continuation. Therefore, it’s more likely the upper boundary will be broken in an uptrend and a lower boundary will be broken in a downtrend.

Traders may open a position as soon as the breakout candlestick closes or wait for several candles to be formed in the breakout direction. The choice depends on a trader’s experience and willingness to take risks.

One of the disadvantages of the formation is the risk of a fakeout when the price moves in the previous direction. Therefore, traders use various tools to confirm price moves.

Take Profit

The common rule is to measure the widest part of the triangle and calculate the same distance from the breakout point.

Stop Loss

No matter what tools traders use, many rely on the standard risk/reward ratio of 1:2 and 1:3, which can be increased if a trader feels confident.

Another trader’s method is to place the stop-loss order just under the lower trendline in a buy trade and above the upper one in a sell trade.

Symmetrical Triangle Trading: Example

A pattern formed on the 4-hour chart of the GBP/USD pair. As it was a solid uptrend, a trader could expect it to continue. A take-profit level would equal the height of the triangle at its widest part (1) and would be set just from the breakout point. A stop-loss order could be calculated according to the 1:2 risk/reward ratio and placed at point 2.

If a trader opened a buy position as soon as the breakout candlestick closed, the setup standard rules would work. However, if they waited for several candles to form, the returns would be smaller than they could be.

Confirmation Tools

When trading with the symmetrical triangle, it's important to use additional confirmation to contribute to the accuracy of your trades. Here are some tools and techniques you can use:

• Volume Surge: One of the most reliable confirmation tools is volume. A significant rise in volume during the breakout indicates strong momentum and increases the likelihood of a sustained move.
• Moving Average Crossovers: Moving averages can help confirm the trend direction post-breakout. For example, a bullish crossover (where a shorter-term moving average crosses above a longer-term moving average) after an upward breakout can confirm the upward trend.
• ADX (Average Directional Index): ADX measures the strength of a trend. A rising ADX after a breakout suggests a strong trend.

Symmetrical Triangle vs Pennant

The pennant formation is similar to the symmetrical triangle, but it is generally smaller and occurs after a significant price movement, forming a brief consolidation before continuing in the direction of the prior trend. The symmetrical triangle can provide either a continuation or reversal signal, while the pennant typically signals a trend continuation.

Benefits and Drawbacks

The primary challenge of the symmetrical triangle is its confusing signals. However, this is not the only aspect you should consider when using this chart formation.

Benefits

• It occurs on any timeframe. Triangles earned recognition due to their ability to be formed on every timeframe. However, if the trend is solid, the triangle's signals may be more reliable.
• It is used when trading various assets. Traders look for the symmetrical triangle on stocks, commodities, cryptocurrencies*, indices, and currencies price charts.
• It requires few tools. A trader only needs to draw two lines to determine the pattern on a chart. You can practise on the TickTrader trading platform.
• It offers exact entry and exit points. Triangles offer particular entry and exit points, which can be used directly or with little corrections according to a trader's approach.

Drawbacks

• It may be confusing. Is the symmetrical triangle bullish or bearish? Unlike ascending and descending setups, this formation could be either.
• Fakeouts. There is a significant risk of a false breakout, as triangles are consolidation formations, reflecting market uncertainties.
• It may fail. As with other patterns, there is no guarantee the price will behave according to a triangle's rules.

The Bottom Line

The effectiveness of triangles depends on market conditions and the skills of the trader. Before implementing the symmetrical triangle in forex trading, or any other market, you should learn its unique features, test it in real market conditions, and adjust its rules to their trading approaches. Open an FXOpen account to apply different strategies with the triangle formation to the live markets and enjoy tight spreads and low commissions!

FAQ

How Do You Identify a Symmetrical Triangle Trading Pattern?

A symmetrical triangle is identified when two converging trendlines connect a series of lower highs and higher lows on a price chart. The trendlines should be symmetrical, forming a triangle shape as they converge.

What Is a Symmetrical Triangle Pattern in Crypto*?

In cryptocurrency trading, the symmetrical triangle functions the same way as in other markets. It indicates a period of consolidation, where the price is moving between narrowing trendlines before a breakout. This formation can signal a potential sharp move in either direction once the price breaks out of the triangle. Read our article “Crypto Chart Patterns in Trading.”*

How Do You Use a Symmetrical Triangle?

A symmetrical triangle is used in trading to identify a potential breakout after a period of consolidation. Traders watch for the price to break above or below the converging trendlines to signal the direction of the next move, typically entering a trade in the direction of the breakout with a stop loss just outside the opposite trendline. The take-profit target is typically set by measuring the height of the triangle at its widest point and projecting that distance from the breakout point.

*At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules, respectively. They are not available for trading by Retail clients.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.