Symmetrical Triangle Chart Pattern Breakouts on Forex Trading

In: Triangle Chart Pattern | Last Updated: March 20th, 2017

Triangles are among the most famous chart patterns. And, Symmetrical
Triangle is the most famous and popular kind of triangle chart patterns known
in technical analysis. There are some professional traders who only trade the
triangles, because they believe triangles are much easier to locate, and it is
also much easier to take a position, set the stop loss and target, when a
triangle is formed on a bullish or bearish market.

In this article, I am talking about Symmetrical Triangle Chart Pattern. I am

sure after reading this article, you will think seriously about using this chart
pattern in your trades as a forex trader. You can learn about the other kinds of
triangles through reading the below articles:

Ascending Triangles

Descending Triangles

In Symmetrical Triangle, both of the two legs are pointed to the same point. It
means both of the legs have the same angle against the horizontal line.

Depends on the direction of the market, there are two kinds Symmetrical
Triangle: Bullish and Bearish

However, Symmetrical Triangle also forms on the ranging and sideways

markets.

Bullish Symmetrical Triangle Chart Pattern

Bullish Symmetrical Triangle Chart Pattern forms at the top of an uptrend. In

most cases, a Bullish Symmetrical Triangle that is formed in an uptrend will
break above. It means the price will break above the triangle resistance and
the uptrend will be continued. Therefore, Bullish Symmetrical Triangle in an
uptrend is a continuation pattern usually.

However, it doesnt means that you should go long as soon as you see a
Symmetrical Triangle formed on a bullish market. You should always wait for
the price to break above the triangles resistance, and then you go long. I will
tell you how, later in this article.

Bearish Symmetrical Triangle Chart Pattern forms at the end of a downtrend.

Like the Bullish Symmetrical Triangle, a Bearish Symmetrical Triangle is
usually the downtrend continuation, and will break down eventually. However,
it is not a good idea to trade based on these rules, simply because the market
moves on its own way and it doesnt necessarily follow these rules. You
cannot go long just because you see a Symmetrical Triangle formed on a
bullish market. You cannot go short just because you see a Symmetrical
Triangle formed on a bearish market. Wise, experienced and disciplined
traders have a safer way to trade these kinds of chart patterns.

Bearish Symmetrical Triangle Chart Pattern

Taking Positions After the Symmetrical Triangles Breakouts

On a bull market, you have to wait for the Symmetrical Triangle resistance
breakout. No matter what time frame you use to trade, when a candlestick is
closed above the resistance, you can go long and set your stop loss several
pips below the open price of the candlestick which has closed above the
resistance.

This is a Symmetrical Triangle Chart Pattern formed on GBP/USD four hours

chart. Just see how it looks like, and then we will have a closer look at it in the
next screenshot:

Symmetrical Triangle Formed on GBP/USD 4hrs Chart

If you were trading the above triangle resistance breakout, you could go long
when one of the candlesticks closed above the triangle resistance (see the
below screenshot). You could set the stop loss several pips below the
breakout candlestick which is the candlestick that closed above the
resistance. However, that stop loss could be a little risky, and so, it would get
triggered if the market goes down to retest the broken resistance. Therefore,
you could place your stop loss a little lower, just to be at the safe side. That is
why I have indicated three levels for the stop loss on the below screenshot.
One of them is a little risky, and the other two are safer.

You have to calculate your positions size based on the stop loss size, not to
lose a lot when you choose the wider stop loss. You should choose your
position size in a way that you always take a 2-3% risk, no matter how wide
or tight the stop loss is.
As you see on the below screenshot, the price went down to retest the broken
resistance, after a candlestick broke above the resistance and closed above
it. Retesting is something that markets do sometimes. It means, when the
market breaks above a resistance, it sometimes goes down to retest the
broken resistance. A broken resistance should work as a support. It is the
same with support breakout. A broken support line should work as a
resistance during the retesting attempt.

Retesting assures you that the broken support or resistance is valid. When a
support or resistance line is valid, it will work as a resistance or support line
after the breakout and during the retesting. If a broken resistance doesnt let
the price go down and candlesticks close above, it means the broken
resistance is valid, and you can trust its breakout to go long.

This is something you can clearly see on the below screenshot. Some smart
traders wait for the market to retest the broken resistance or support. A valid
retesting assures that the resistance or support is valid and its breakout is
reliable and trustworthy. After the breakout, if the market violates the broken
support or resistance, you have to be careful not to take any positions,
because it means either the support or resistance line you plotted on the
chart is invalid, or, it is valid but the market has violated it and it cannot work
as a resistance or support after the breakout. It increases the probability of
hitting your stop loss.

Please look at the below screenshot carefully and pay attention to the entry
and stop loss levels, as well as the market retesting attempt after the
resistance breakout.

Bullish Symmetrical Triangle Resistance Breakout

What About the Target?

I do not recommend taking positions with less than 1:3 risk/reward ratio. It
means your target has to be at least x3 of your stop loss. For example, if your
stop loss is 30 pips, your target has to be 90 pips. It is not only that. You have
to move your stop loss to breakeven if the market moves toward the target
for a reasonable number of pips which can be the same or twice of your stop
loss size.

That was about going long after the resistance breakout when a Bullish
Symmetrical Triangle is formed on a bullish market.

Going short with a Bearish Symmetrical Triangle has the same rules. You wait
for the market to break below the triangle support line. Then you go short
and set your stop loss several pips above the candlestick that has closed
below the support line. You can consider the safer levels of stop loss as
explained above.

Additionally, if you like to take less risk and have safer trades, you can wait
for the market to retest the broken support line, and in case the broken
support line works as a resistance properly, you can go short.

Is That All?

No. There are some other things that are important to know.

1) As it was explained at the beginning of this article, Symmetrical Triangles

do not necessarily have to form always on bull or bear markets. They also
form on the sideways and ranging markets. In this case, we can still wait for
the price to break above the triangle resistance to go long, or below the
support to go short. However, something that you be careful about in a
ranging market is that usually the breakouts are not reliable and the price can
easily violate the broken support or resistance after the breakout.

On ranging markets, it happens a lot that you think you have found a good
triangle pattern, but then the market keeps on moving sideways without
paying any attention to the triangle. It keeps on moving sideways and it
reaches to the area that we call it Apex. Professional traders say that when
the price reaches the Apex, the triangle is not valid anymore and the next
direction of the market can be anyones guess. So I recommend you not to
use the triangles and also the other patterns to trade in a ranging market.
Youd better to wait for the market to break out of the range and start moving
up or down strongly, and then you wait for a trade setup.

Apex Area in Symmetrical Triangle

2) Symmetrical Triangles do not always work as continuation patterns. They
can work as reversal patterns too. It means they can form at the end of a bull
market and then instead of going up after breaking above the resistance of
the Triangle, the market reverses and goes down after breaking below the
support line of the triangle. It is the same with the bear markets. A
Symmetrical Triangle at the end of a bearish triangle can sometimes work as
a reversal pattern, and the market breaks above the resistance and goes up.

That is why I told you earlier that you should not take a position just because
you have located a Symmetrical Triangle either on a bull or bear market. It is
correct that it is more possible that the price breaks above the resistance and
goes up on a bull market, however, it may not happen all the time, and the
market sometimes violates this rule that says, on a bull market a
Symmetrical Triangle breaks up, and on a bear market a Symmetrical Triangle
breaks down.

To stay away from losses, you have to wait for a breakout, and then take a
position, and you should not trade based on the rules that are written on the
papers. Markets do not pay any attention to these rules, and they move on
their own ways.

Here is an example of a bull market (uptrend) that went to a range for a short
time, and then reversed and went down after forming of a Symmetrical
Triangle and the breakout of the triangle support. As you see, although the
market should break above the Triangle resistance and go up according to the
Triangles rule, it reversed and went down:

Symmetrical Triangle as a Reversal Pattern

3) It is usually clear where to take the position and set the stop loss. But it is
hard to say how long you can hold the position, and how far the market will
keep on moving after the Symmetrical Triangle breakouts. As it is hard and
sometimes impossible to predict the size of the market movement after a
trade setup, some traders always take positions with a constant level of
risk/reward ratio. For example, they always take 1:3 positions. However, when
it is sometimes possible to predict the size of the movement to maximize
your profit and have wider targets, why shouldnt you do it?

Some traders and chartists have tried to predict the size of the market
movement after the Symmetrical Triangle breakouts. Their efforts have
resulted in some good points that are so helpful in holding and setting the
target orders of the positions that are taken based on the Symmetrical
Triangle breakouts.

This part is a little harder to understand. So please pay more attention.

Please take a look at the above screenshot one more time. As you see, the
price broke below the support line of the Triangle and then went down
strongly. Now, plot a line parallel with the upper leg of the Triangle, started
from the beginning of the triangle lower leg (see the below screenshot.)

I mean a line which is parallel with the AB leg, and is started from the C point.
I have already plotted this line on the below chart. It is the CD line (the
dashed line.)

As you see, the market has reacted to this line very precisely and accurately.
At least the first reaction of the market to this line (marked with #1 on the
below chart) could be considered as the first target:

Symmetrical Triangle Breakout Target

Now, the question is how could we know where the market would touch the
CD line, and how far the market would go down after the breakout?

There is an answer for this question too. Just plot a vertical line from the A
point and let it touch the CB leg. Now measure how many pips the length of
this vertical line is. Whatever it is, after the breakout, the market downward
movement will be the same size as this vertical line.

I have already done that on the above chart. You can see the result on the
below chart.

The AE line is the vertical line I talked about. It is started from the A point and
has touched the CB leg. Then, I duplicated the AE line and moved the
duplication to the F point which is where the price has broken below the
support line. The FG vertical line is the duplicate of the AE line. As you see
the G point is exactly at the same level that the price has touched the CD line
(the #1 point.)

It is amazing, isnt it?

You can easily predict the direction and destination of the market using these
simple methods. Point #1 can be our guaranteed target. The market went up
after that and then went down again and broke below point #1 too. But, it
bounced up again when it touched the CD line which is the line we already
had on the chart since the Symmetrical Triangle support breakout (point #2.)

More About the Symmetrical Triangle Target

Are these movements guaranteed 100%?

Absolutely not. If they were, now there would be an untold number of
millionaires. But something that guarantees your profit at the end of the
month, is that you wait for a proper breakout and trade setup, you enter the
market and set a proper and reasonable stop loss. Therefore, if the market
doesnt behave as you expect, then you will be out with a small loss, and you
can try your luck and recover your loss with the other trade setups. This is
how it works.

Lets take a look at another example.

The below chart shows a Symmetrical Triangle resistance breakout. As you

see, the same calculations and predictions we had above, are applicable and
true about this trade setups too. However, as it was already explained, the
movements and directions are not guaranteed and exact as they are
predicted by the plotted lines. In spite of this, and although we see some
violations on the blow chart, all of the target points are reached. Do you
agree?

Symmetrical Triangle Target on a Bull Market

Conclusion:

1. Symmetrical Triangle Chart Pattern can work both as the continuation and
reversal pattern. In an uptrend, it is more probable and expected that a
Symmetrical Triangle Chart Pattern breaks above the resistance and the
uptrend to be continued. When formed in a downtrend, it is also more
expected that a Symmetrical Triangle Chart Pattern breaks below the support
line and goes down. However, you have to be aware that Symmetrical
Triangles also work as reversal patterns on uptrends and downtrends.
Therefore, be careful and not to take any position before a breakout that
indicates the direction.

2. Be precise and disciplined about your stop loss and target orders, and set
them according to the directions I gave you above. Calculate your positions
size properly not to take more than 2-3% risk in each trade setup.
3. Although we do our best to have safer positions, our stop loss will be
triggered sometimes. This is absolutely normal and happens for all traders,
even the most professional ones. None of the above techniques I explained
are guaranteed. Additionally, it takes you some time to master these
techniques and become able to locate proper and reliable trade setups.
Losing is part of this game and has to be tolerated and handled properly and
professionally. Do not expect that the market hits your target anytime that
you take a position. And do not get disappointed when the market hits your
stop loss sometimes.