Symmetrical Triangles: The Calm Before the Storm for Exp20

Introduction

The symmetrical triangle is a consolidation pattern that represents a period of indecision in the market. Unlike its cousins, the ascending and descending triangles, the symmetrical triangle does not have a clear bullish or bearish bias. Instead, it signals a period of contracting volatility, with the price making lower highs and higher lows. This coiling action often precedes a significant price move, making the symmetrical triangle a pattern that every professional trader should understand.

Formation of the Pattern

The symmetrical triangle is formed by two converging trendlines of roughly equal slope. The upper trendline connects a series of lower highs, while the lower trendline connects a series of higher lows. This creates a symmetrical shape, with the price action becoming increasingly narrow as the pattern develops.

Formation

1. Converging Trendlines: The upper and lower trendlines are converging, with the upper trendline descending and the lower trendline ascending.
2. Contracting Volatility: The price range between the trendlines becomes progressively smaller.
3. Breakout or Breakdown: The pattern is resolved when the price breaks out above the upper trendline or breaks down below the lower trendline.

Volume

Volume tends to diminish as the symmetrical triangle forms, reflecting the decreasing volatility and indecision in the market. A sharp increase in volume should accompany the breakout or breakdown, confirming the validity of the move.

Price Objective Formula

The price objective for a symmetrical triangle is calculated by measuring the height of the triangle at its widest point and projecting that distance from the breakout point.

Price Objective = Breakout Price +/- Triangle Height

Price Objective = Breakout Price +/- Triangle Height

Example Data Table

Consider the following hypothetical data for a symmetrical triangle pattern:

The triangle height is 5 (130 - 125). The price objective would be:

Price Objective = 128 + 5 = 133

Conclusion

The symmetrical triangle is a valuable pattern for identifying periods of consolidation and potential breakouts. While it does not have a directional bias, its clear formation and measurable price objective provide a framework for trading the subsequent move. By waiting for a confirmed breakout or breakdown on high volume, traders can position themselves to profit from the release of energy that often follows these periods of indecision.