As a forex trader, you may have heard about chart patterns and how they relate to technical analysis.
These patterns are called triangle chart patterns, and they have three variants:
- Symmetrical triangle
- and descending triangle pattern.
Traders can predict the next price moves through these patterns. It allows traders to identify where an interrupted trend resumes its movement.
To understand these chart patterns thoroughly, it is essential that you grasp how they form in the chart. They do not emerge the same way, so they can’t be interpreted in a similar manner. The symmetrical triangle is the point where the others form. So it is the basic triangle pattern.
We will show you how to draw the symmetrical triangle pattern in this guide and how to trade it in forex.
Before that, let’s understand the basics of triangle patterns.
What is a triangle pattern in forex?
A triangle pattern in forex is a shape that forms on the price chart resulting from price movements. The price action at the top and bottom move toward each other and takes the form of a triangle pattern. It is a signal that the current trend is about to resume and continue on its original path.
As the triangles form, traders expect a breakout to occur in the triangle. This would be the signal to place a trade.
There are 3 types of triangle pattern formations, as we have mentioned. Let’s briefly examine them.
Different types of triangle patterns
This pattern forms in an uptrend or bullish market. The bottom of the triangle rises while the top part remains at the same point. The trader expects a breakout on the top part and prepares to enter a BUY trade at this point.
Descending pattern is the opposite of the ascending triangle. It forms in a bearish market and is often used to identify an entry point for a SELL position.
This pattern usually forms at the beginning of a new market trend. It can emerge in an uptrend or a downtrend market, and it contains two trend lines that converge to form the triangle.
Let’s further examine the symmetrical triangle and how to use it to trade the forex market.
Is a symmetrical triangle bullish?
The symmetrical triangle can be bullish or bearish. It forms as the line that constitutes the price highs connects with the one that shows the price lows. Both lines join to form a triangle shape. This means that prices are reaching lower highs and higher lows. That is, both buyers and sellers are equally active in the market.
As the lines move closer, traders expect a breakout. Although, it is tough to determine which direction the price would break.
So the trader waits for the breakout. Then enters the market above the lower high lines or below the higher low of the symmetrical triangle. The position they trade would then depends on the direction of the breakout.
Bullish symmetrical triangle
This forms in a bullish market. The price movement before the triangle should indicate a bullish move.
How it is formed
You can identify it through the two symmetrical connecting trend lines on the price chart. The first line is bearish and is called the resistance line. The second line is bullish and is known as the “support line of the symmetrical triangle.
It is a bullish symmetrical triangle if the price makes a bullish move before the triangle forms.
Important points to note about bullish symmetrical triangle
- A bullish symmetrical triangle is confirmed if the triangle forms at the beginning of the bullish trend.
- Exit on a bullish symmetrical triangle should be planned at 80% of the pattern.
- Breakouts are a perfect opportunity to trade this pattern.
- It is not advisable to open positions if the breakout occurs before the 3rd or 4th triangle.
Bearish symmetrical triangle
A bearish symmetrical pattern is the opposite and forms in a bearish market. The price makes a bearish move before the triangle formation, indicating a bearish symmetrical triangle.
The first line that forms this triangle is a bullish one, followed by a bearish line.
Is the symmetrical triangle bullish or bearish?
The symmetrical triangle is a neutral pattern that can form in a bullish or bearish market.
The breakout can occur in a bullish or bearish move. A symmetrical triangle often forms as a continuation pattern, but a new trend can emerge. The price can break at a different point from the ongoing trend.
It can be a breakdown, which occurs below the trend line and starts a bearish or downtrend market. A breakout can take place from the top of the trendline, ushering in a bullish market or an uptrend.
How do you trade a symmetrical triangle in forex?
To trade a symmetrical triangle in forex, the first step is to identify the pattern in your price chart.
For this, you need to bear these points in mind:
- The connecting trend lines should converge in a way that causes the slopes to be equal.
- A bullish symmetrical triangle forms in a prevailing uptrend market. In this case, the price breaks out from the trend line at the top.
- A bearish symmetrical triangle forms in a continuing downtrend market. The price breaks out from the trend lines below in this case.
Once you identify the pattern, you need to confirm the breakout point. This makes it easy to trade this triangle.
Enter a position in the direction of the ongoing trend
After confirming the breakout, enter the market in the direction of the ongoing trend. Remember, we mentioned earlier that triangles formation indicates a continuation of the interrupted trend.
There’s a possibility of the break occurring in a different direction than the initial trend. That is the start of a new trend. The trader should make sure they confirm the breakout by using technical analysis.
You can place your trade above the line of the lower high or below the higher low of the symmetrical triangle. It depends on the direction the price takes.
If you enter a BUY trade above the lower high slope, and the price moves up. It would be a winning trade with good profit as its price rises.
But if it enters from below, you can quickly cancel the trade once the price moves up.
In addition, you would have set your stop-loss near that point.
Set a stop loss
It is best to place the stop loss at the opposite trend line. In case the breakout moves in a different direction. You can place the stop loss above the trend line or below it, depending on the market condition. But ensure to place it opposite your expected breakout.
Calculate the appropriate take-profit by measuring the distance between the top trend line and the lower one. The longest distance from the beginning of the trend line is the best point to put the take-profit order. Measure the distance from the point at which you entered the market.
How do you draw a symmetrical triangle?
The symmetrical triangle falls under a continuation pattern. It forms to signal a breakout at some point in the price movement. It usually consists of two lower highs and two higher lows.
These points connect to form the symmetrical triangle.
This pattern usually indicates a continuation of the initial trend. Though, once in a while, it may signal a reversal in the trend.
The pattern is neutral, so the next price movement is made clear only after a breakout. This is what traders watch out for.
Characteristics of a symmetrical triangle
Let us examine some elements of a symmetrical triangle below:
The symmetrical triangle is a continuation pattern that forms during an ongoing trend. Therefore, a trend must exist for this pattern to emerge. The momentum can either be an uptrend or a downtrend. The symmetrical triangle can not form in a sideways market.
Four points must be spotted in its formation. Two forms the trend lines, and the trend lines form the symmetrical triangle. The first must be higher than the second for the two higher lows, and the top line should tilt down. The first low should be lower than the second for the higher lows, and the lower line must tilt up. The pattern should form with 3 points on each side, making it 6. Then a breakout occurs shortly.
Duration of the pattern
It usually takes between a few weeks to about 3 months for the pattern to fully form. It might be false if it is below 3 weeks. So, a trader looking to use this pattern must see that the trend had lasted at least, as long as the period stated.
Breakout direction and time-frame
Breakouts that occur halfway (1/2) through the development of the pattern are the best to trade. A break that happens before this point is too soon to determine the right direction. If it occurs too close to the end, it might be pointless to trade the breakout.
The price direction can only be ascertained after the breakout has occurred. It is always recommended to wait for the breakout as it may not be a continuation but a reversal.
To draw a symmetrical triangle pattern on your chart, connect the two trend lines, which consist of the lower highs and the higher lows. This should form a symmetrical triangle.
Remember the elements of these patterns. They do not just form in the chart. All the characteristics are what make it valid.
Many forex traders rely on patterns that take shape in the price charts for successful trades. Technical analysis traders find these patterns highly useful. There are different kinds of patterns. Each is useful as long as the trader knows how to identify them on the chart. Triangle patterns are among the popular ones with forex traders. The first step is to be able to identify the pattern. Then find the best entry and exit points. We have explained how to do these in this short guide. Remember to use your stop-loss and take-profit settings. The market remains volatile, and trends can change or be interrupted at any time.
Frequently Answered Questions
What is a symmetrical triangle?
A symmetrical triangle is a continuation pattern that takes shape in any market condition, whether uptrend or downtrend. It usually signals a continuation of an initial trend but can also usher in a new one. Traders wait for a breakout to see the best entry point in this pattern.
How do you draw a symmetrical triangle?
Look for the two trend lines that make up the lower highs and the higher lows. These two lines must slope to converge at a point. Connect both trend lines to form your symmetrical triangle. Note that these patterns can only emerge in an ongoing trend that has lasted for at least 3 weeks.
What is triangle pattern in forex?
A Triangle pattern is a specific triangle shape that forms in the forex price chart resulting from the price movement. They usually indicate the continuation of a trend, a breakout, or a reversal.
How do you use triangle pattern in forex?
The best way to use a triangle pattern in forex is to wait for the breakout to occur. Enter a position according to the direction of the breakout, and set a stop loss near the opposite trend line. Exit the trade if the breakout is false and the price takes the opposite direction.
Is triangle pattern bullish?
The Triangle pattern has three variants. One of them is the Ascending triangle pattern. This forms in a bullish market. It forms when the price moves past the top horizontal trend line.