Symmetrical Triangle Pattern - Definition, Benefits, and How It Works | Religare Broking

# Understanding the Symmetrical Triangle Pattern in Technical Analysis

Technical analysis patterns can help investors predict market conditions and make better decisions. The symmetrical triangle is one such pattern that can help investors identify a period of consolidation in the market. It can be easily identified on a price action chart, even by beginners in the stock market. Read on to learn more about the symmetrical triangle pattern.

## What is a Symmetrical Triangle Pattern?

The symmetrical triangle is a technical analysis pattern observed after price action analysis. Price action analysis involves plotting an asset’s price trends on a chart. It is observed after you draw two trend lines on the chart. The first trendline will join the highs, while the other will join the lows. This pattern occurs when the upper trendline joins the lower highs while the other joins the higher lows.

Both trendlines in the pattern converge towards the end, thus making a triangle-like shape. It is called a symmetrical pattern because the slope of both trendlines is almost equal. The symmetrical triangle pattern occurs when the price of an asset lies within the converging trendlines. When you observe this pattern on the chart, it represents a period of consolidation in the market. There is indecisiveness in the market during this pattern.

## How Does a Symmetrical Triangle Pattern Work?

The symmetrical triangle pattern always occurs amid an ongoing trend. It represents a period of consolidation or indecision among investors. For the same rationale, the price moves within the converging trend lines during the pattern. The pattern represents a pause in the ongoing trend where buyers and sellers take a breather. During the occurrence of this pattern, buying and selling forces remain in balance. Once a breakout occurs, the initial trend will continue. For the same rationale, investors consider the symmetrical triangle chart pattern as a trend continuation signal.

Even though it is a consolidation and continuation pattern, they might be false signals at times. It happens because technical analysis patterns are not perfect individually. However, you can use multiple technical analysis tools simultaneously for additional confirmation.

Since there is a period of consolidation in the market during such a pattern, the trading volume decreases. Most investors remain in confusion and refrain from placing orders. Investors closely observe the converging trendlines, as a breakout might occur. A breakout denotes that the indecision in the market has ended. Also, the previous trend continues in most situations after a breakout from the symmetrical triangle.

It is crucial to note that a normal symmetrical triangle pattern has almost the same slope for both trendlines. The buying and selling forces are almost equal. Investors wait for a potential breakout to occur, which indicates the continuation of the previous trend. However, there can be two more variations, which are interpreted differently.

The first variant is the flat top triangle, where the upper trendline is flat. However, the lower trendline connecting higher lows slopes downwards. It signals a bullish continuation when the breakout occurs above the resistance level. However, a breakout to the downside or below the lower support level denotes a bearish continuation. Investors must also know about the second variation, the flat bottom triangle. The lower trendline in a flat bottom triangle remains flat, while the upper trendline connecting lower highs shows the slope.

## Importance

The symmetrical triangle pattern is essential for making informed decisions in the stock market. It allows investors to predict future market conditions and take better positions and represents a period of consolidation in the market. Investors will know that there is indecisiveness in the market with the help of this pattern. Based on the breakout from the converging trendlines, investors can predict a trend continuation or reversal. When investors know about the upcoming price movements, they can take better market positions.

Investors often use this pattern to set stop-loss orders . One can identify the support and resistance levels with its help. Investors can mitigate risks or losses by setting stop-loss orders with the help of support and resistance levels. Risk management becomes essential for investors to protect their investments. New investors often fail to determine the target prices for stop-loss orders. As a result, their portfolios are open to risks. Luckily, they can use this pattern to mitigate the risk.

The pattern can give false signals at times. Luckily, you can use a range of factors for the confirmation of the pattern and increased accuracy. You can check the trading volume, momentum, and other factors for additional confirmation. It will reduce the chances of getting false signals. One can find the entry and exit points once the pattern is confirmed, thus leading to better returns.

Now that you have understood the basics of this pattern, here are its advantages:

• It helps predict future market conditions. Investors can know about future market conditions and make decisions accordingly.

• Investors can identify the support and resistance levels. It allows them to place informed stop-loss orders.

• Investors can see the direction of the breakout from the triangle. It allows them to make informed decisions based on a bearish or bullish breakout.

• The pattern can be used for a variety of assets, including stocks, commodities, and currencies. Also, one can apply the pattern across different timeframes, thus helping both long-term and short-term traders.

• Investors can use it to confirm the continuation of an ongoing trend. It can also be used together with other technical analysis patterns for increased reliability.

Here are some cons of this pattern:

• It is not foolproof in itself. For the same rationale, it might generate false signals in some markets.

• In case of a false signal, the ongoing trend might reverse in the market. It could lead to losses for investors who have taken prior positions in the market.

• Some investors might fail to interpret the symmetrical triangle pattern, thus leading to poor decision-making. Also, different investors might interpret the pattern differently.

• Some investors might wait for the pattern to form over a long period. It might result in missed opportunities in the  stock market .

• There have been cases where increased market volatility has affected the accuracy of such patterns.

• It might coincide/overlap with other technical analysis patterns on a price action chart. It might confuse investors, and they might fail to predict market conditions.

## How to Identify the Symmetrical Triangle Pattern in Price Chart?

Beginners in the stock market might face some issues while identifying the symmetrical triangle pattern. It is advised to first search for an ongoing trend in the market. Since it occurs amid an ongoing trend, it is essential to confirm a market trend first. The next step is to draw trendlines to create a triangle-like shape. You must join the highs together to create the upper trendline of the pattern. The lower trendline will be formed by joining the lows of the asset. These trendlines must converge to form a triangle-like shape.

Investors must look for trend lines formed due to lower highs and higher lows. When the highs of an asset keep decreasing and the lows keep rising, both trend lines converge. However, the same cannot be said for flat top and flat bottom triangle patterns. Flat top and flat bottom triangle patterns have at least one trendline with no slope (flat). One must also locate the apex of the triangle in this pattern. When prices continue to move towards the apex of the triangle, a breakout is likely to occur.

Once you have identified the converging trend lines towards the apex, it is essential to determine the support and resistance levels. A break above the upper trendline or below the lower trendline can provide investment opportunities. However, it is essential to confirm a breakout first before investing. You can rely on some  candlestick patterns  to confirm a breakout in the symmetrical triangle pattern.

## What are the Key Characteristics of a Symmetrical Triangle Pattern?

Here are the key characteristics of a symmetrical triangle pattern:

• Converging Trendlines: The pattern will always have two converging trendlines. The trendlines connecting higher lows and lower highs will converge towards the apex of the triangle.

• Symmetry: The pattern is almost symmetrical, which means it can be divided into two almost equal halves. It happens because the slope of both trendlines is almost the same. However, the same cannot be said for flat top and flat bottom triangle patterns.

• Decrease in Trading Volume: The trading volume usually decreases during a symmetrical triangle pattern. Since the pattern represents a period of consolidation, many investors refrain from making trades.

• Breakout: A breakout trading might occur towards the apex of the symmetrical triangle. It might also occur just before the trendlines reach the apex. Investors must keep a close eye on the breakout.

• Target Price: You can measure the triangle’s height to determine the target price. Investors can determine the support and resistance levels to take better market positions.

## Failure of Triangle Continuation Pattern

As discussed above, the symmetrical triangle pattern is a continuation pattern. It signals a period of consolidation followed by the trend continuation. In most cases, the breakout will happen in the direction of the ongoing trend. However, the pattern might give false signals in some cases, thus confusing investors. When this pattern fails, the breakout occurs in the opposite direction of the ongoing trend. For the same rationale, investors must confirm the trend continuation with the help of other technical analysis tools. You can also wait for some time after the breakout to confirm trend continuation before investing. However, the pattern will be followed by a trend continuation in 80% of the cases.

## Key Points to Remember in Triangle Continuation Pattern

You must remember these points before trading with the symmetrical triangle pattern:

• Keep a note of the ongoing trend before the pattern occurs. The breakout might occur in the same direction in most cases.

• In case of a triangle failure, you can use morning star, evening star, and other trend reversal patterns for confirmation.

• It is better to wait until you know the direction of the breakout from the symmetrical triangle.

## Conclusion

The symmetrical triangle pattern is a trend continuation pattern for investors. It represents a moment of indication in the market when buying and selling forces are in equilibrium. While the ongoing trend continues after the breakout, there can be false signals at times. Investors must use the pattern in conjunction with other technical analysis tools to get accurate results. Start trading with the help of technical analysis patterns now!