To practice the symmetrical triangle example detailed in this article visit http://tradingsim.com.
Symmetrical Triangle Definition
A symmetrical triangle is the most common triangle chart pattern. It is comprised of price fluctuations where each swing high or swing low is smaller than its predecessor. This coiling price movement creates a structure of a symmetrical triangle. As a symmetrical triangle is forming, trading activity diminishes along the way until the apex of the triangle is reached.
Many technicians believe that if a stock is rallying prior to a symmetrical triangle, the stock will eventually breakout to the upside. Conversely if a stock is falling prior to a symmetrical triangle forming, the stock should continue lower. Both of these assumptions are wrong. Symmetrical triangles provide little, if any indication as to which direction the stock will ultimately breakout. Remember from the above definition, there is a lack of volume and price movement which creates a coiling pattern, therefore it is simply impossible to assess which way a symmetrical triangle will inevitably breakout.
Symmetrical Triangle Breakout
There are two key components to a symmetrical triangle breakout: price and volume. For a breakout to the upside, you want the stock to close decisively outside of the triangle formation with a pickup in volume. Breakouts to the downside also require a decisive price break of the formation, but the volume does not need to display a significant increase in activity. If you notice a pickup in volume on a breakdown, odds are it is a false signal and the stock will likely reverse to the upside.
Symmetrical Triangle Breakout Chart Example
Symmetrical Triangle
