Symmetric Triangle - Found at EHL
Symmetrical
Symmetrical triangles are formed when neither the bulls nor bears have an upper hand in a directionless market and can be identified when the stock makes lower highs and higher lows. If you connect these lower highs, you get a falling trend line. This resistance line is also known as supply line. Similarly, the uptrend line that is formed when you connect the higher lows is also known as support or demand line. The time taken to form this pattern is very important and usually takes 1-3 months. If it is formed in a smaller time frame, say 10-15 days, it is called a 'pennant'.
Though a symmetrical triangle is commonly considered a continuation pattern, there are instances when it acts as reversal pattern and, hence, one needs to wait for the final breakout. when the price goes above the resistance line or falls below the support line to identify the direction of next move. For instance, a breakout on the upside when the market is in an uptrend, can be considered a continuation pattern.
Since the trading range comes down during the formation of a symmetrical triangle, the chance of a false breakout is high (any increase in volatility can result in the price going above or below these lines). To avoid this, one needs to introduce strict breakout rules. First, the breakout has to occur on the basis of closing, which means that any intra-day penetration of lines is usually ignored. Some traders also apply the price-based rule, that is, the price should move at least 3% above or below the breakout point; or the time-based rule, that is, the price needs to close above or below the breakout points for three consecutive days. Like any other trading pattern, the breakout should be supported by volume, especially when it is an upward breakout.
An accelerated price movement, gap formation, etc, can also be considered as breakout confirmation. Once the breakout is confirmed, the next step is to identify the possible target price. This is arrived at by measuring the widest distance of the symmetrical triangle and adding/deducting this value to/from the final breakout point.
Symmetrical
Symmetrical triangles are formed when neither the bulls nor bears have an upper hand in a directionless market and can be identified when the stock makes lower highs and higher lows. If you connect these lower highs, you get a falling trend line. This resistance line is also known as supply line. Similarly, the uptrend line that is formed when you connect the higher lows is also known as support or demand line. The time taken to form this pattern is very important and usually takes 1-3 months. If it is formed in a smaller time frame, say 10-15 days, it is called a 'pennant'.
Though a symmetrical triangle is commonly considered a continuation pattern, there are instances when it acts as reversal pattern and, hence, one needs to wait for the final breakout. when the price goes above the resistance line or falls below the support line to identify the direction of next move. For instance, a breakout on the upside when the market is in an uptrend, can be considered a continuation pattern.
Since the trading range comes down during the formation of a symmetrical triangle, the chance of a false breakout is high (any increase in volatility can result in the price going above or below these lines). To avoid this, one needs to introduce strict breakout rules. First, the breakout has to occur on the basis of closing, which means that any intra-day penetration of lines is usually ignored. Some traders also apply the price-based rule, that is, the price should move at least 3% above or below the breakout point; or the time-based rule, that is, the price needs to close above or below the breakout points for three consecutive days. Like any other trading pattern, the breakout should be supported by volume, especially when it is an upward breakout.
An accelerated price movement, gap formation, etc, can also be considered as breakout confirmation. Once the breakout is confirmed, the next step is to identify the possible target price. This is arrived at by measuring the widest distance of the symmetrical triangle and adding/deducting this value to/from the final breakout point.
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