Symmetrical chart patterns can be found in
almost any market and any time frame. They
normally signify some indecision in the
market and as the pattern develops it is
common to see a decrease in volume. The
pattern forms as the bar's highs and lows
inside the triangle converge so as to
outline the shape of a triangle.
Symmetrical triangles have a tendency to
break in the direction of the preceding
trend and are often accompanied by heavy
volume. Although this is often the case it
is not a given and regardless of the
direction of the break there are normally
good opportunities to trade the breakout.
The fast way to tell if it's a bullish or
bearish triangle is to find the first point
of contact farthest to the left inside the
triangle (see chart example). If the first
point of the triangle is at the top left
then it is a bullish triangle. If the first
point in the triangle is in the bottom left
then it is a bearish triangle.
To find a potential target of a triangle you
can measure the base of the triangle and
then add or subtract that from the breakout
point. Lets assume that point 1 in our
bullish triangle is 95 and point 2 in the
triangle is 80. If you take 80 from 95 you
get 15. Now lets assume the breakout point
is 88. You add 15 to the breakout point to
get 103. Therefore 103 is the target area
for the breakout. The same applies to the
bearish triangle. If point 1 were 80 and
point 2 were 95 you would still deduct 80
from 95 to get 15. If you get a breakout
point of 85 you would now deduct 15 from 85
to get 70 as a potential target point.
In the example of the Japanese Yen (see
second chart) point 1 was 111.71 and point 2
was 102.00 which gave us a base of 9.71. The
breakout occurred at approximately 108.90.
If we add 9.71 to 108.90 it gave us a target
of 118.61.
Although symmetrical triangle can often mean
continuation of the trend this particular
triangle (second chart) formed at the end of
a downtrend and broke up.
