There are different triangle patterns in the technical analysis. These technical indicators can be categorized into three types of ascending triangle, descending triangle, which respectively signal the continuation of bullish and bearish trends.
And of course the third type is known as a symmetrical triangle pattern. In this article, we want to bring this technical indicator under close examination and see what kind of information it can bring for forex traders and how it can be used to further your benefits.
What Is the Symmetrical Triangle Pattern?
Along the same lines as its namesakes, the symmetrical triangle pattern is also regarded as a continuation pattern. This means that unlike reversal patterns that signal the reversal and break out of prices into the opposite trajectory, a continuation pattern is used for the confirmation that the market trend will continue as it is.
But as the name suggests, the symmetrical triangle chart pattern is used to signal the continuation of a neutral trend. Therefore, it is a neutral chart pattern indicator. The way it is formed is that two trend lines consolidate and converge with one another to close the triangle together.
Naturally, for the two trend lines to converge and close the triangle, the highs need to get lower and the lows need to get higher. Therefore, after a certain period of time they meet each other and converge.
Of course the most distance between these two lines can be seen at the beginning of the pattern formation. So, when eventually the two lines converge, they confluence and it results in a sideways movement of the trend which is also known as a sideway trend.
A distinguishing feature of the triangle patterns is increased trading volume. The same can of course be seen with the symmetrical triangle pattern, where we can see an increased trading volume as the trend lines converge. The consolidation of the highs and lows at the closing of the triangle provides proof for the traders that the market has taken a reliable and definite trajectory.
Many expect that this is the reason why traders decide to stay out until the moment of consolidation. Because they are as undecided as the market. Since the market has not shown any definitive proof that it has picked a direction, traders are not likely to enter. But following consolidation, the direction of the market is decided for the foreseeable future, and thus it attracts traders to the market and a higher trading volume can be observed.
Which Way Does Symmetrical Triangle pattern Break?
Now the symmetrical triangle chart is just that – symmetrical. Therefore, it is equal from both sides. But at the same time, it is highly possible that the symmetrical triangle will break toward the direction of the trend before the consolidation.
What does it mean?
It means if the trend of the market has been largely a sideways trend, then the neutrality of the market will be kept with a symmetrical triangle.
But if the overall trend of the market was upwards, it can be expected that after consolidation, the trend will break upwards again.
In any case, we can observe a reliable degree of neutrality with the symmetrical triangle chart – which mostly depends on how powerful the previous trend has been.
It is because of this reason that the symmetrical triangle pattern is usually broken down into two distinct categories of bearish and bullish symmetrical triangles.
What Information Is Hidden within the Symmetrical Triangle pattern?
As you know, with any financial market, including the forex market, no matter which trading pair, the market is not always on a certain trend. In fact, it is highly likely that in many situations and at many times, the market does not have a certain trend.
During these periods, it is said that the market is undecided. Because there is no discernable pattern. The market might be moving up and down a little bit, but mostly sideways.
During these periods, the trading volume is very low, because traders do not have a strong inclination to enter the market and start trading.
There are, however, indicators that can help traders find out when this undecided state of the market is over.
The symmetrical triangle is just one of those indicators.
The main purpose of the symmetrical triangle is to indicate that first the market is moving sideways or is in an undecided state. And secondly, it is used to show when these undecided lines and trends consolidate in order for the market to have a definite direction.
Why Is Symmetrical Triangle pattern Important?
There are many reasons why this chart pattern is used by traders. But one of the most important reasons has to do with the idleness of the market.
When the market is idle, there is not much trading going on. Especially with many forex pairs. Because many traders such as scalpers and day traders need volatility in the market to make benefits.
Therefore, when the market is moving sideways, things are quiet.
This is precisely why the symmetrical triangle pattern is important. Because it tells traders that we have a definite convergence of trends in the market and we can finally see an actual breakout toward either direction.
When Should You Use the Symmetrical Triangle pattern?
Given the nature of the symmetrical triangle, the sideways movement of highs and lows is the best indication for the beginning of the symmetrical triangle.
But the beginning is only for the detection of the pattern.
When should you trust it?
Well, after the early signs are detected, there are other signs that can help you make sure the pattern is indeed forming. First of all, as with most of the patterns in technical analysis, you should see an increased trading volume following consolidation. That is crucially important.
But other than that, you should almost never use a single pattern to make your trades. Obviously, if it were that easy, everyone would be a trader.
The fact of the matter is that you need to use technical indicators in conjunction with one another. They need to confirm each other and act complementary. That is how you can be sure that technical analysis has taken place correctly and dependably.
The symmetrical triangle pattern is a continuation pattern that, unlike the ascending triangle or descending triangle patterns, does not have a definite trajectory, hence called symmetrical. The direction of the symmetrical pattern is defined by the prevailing trend before the convergence of the trend lines in the symmetrical triangle – i.e. it could go either of the three directions; bearish, bullish, or at times sideways.
So this can help traders make decisions whether to buy or sell. Naturally if we are dealing with a bullish symmetrical triangle, it is advised to take a long position because the prices are going to go higher. And on the other hand, if there is a bearish symmetrical pattern, a short position would be advised in order to protect your position before prices fall any further.