What is a symmetrical triangle
A symmetric triangle is a chart pattern characterized by two converging trend lines connecting a series of sequential peaks and troughs. These trend lines should converge at a roughly equal slope. Trendlines that converge at unequal slopes are called rising wedge, falling wedge, ascending triangle, or descending triangle.
Key points to remember
- Symmetrical triangles occur when the price of a security consolidates in a way that generates two converging trendlines with similar slopes.
- The breakout or breakout targets for a symmetric triangle are equal to the distance between the initial high and low applied to the breakout or breakout point.
- Many traders use symmetrical triangles in conjunction with other forms of technical analysis which act as confirmation.
Symmetric Triangles Explained
A symmetric triangle chart pattern represents a period of consolidation before price is forced to break or crash. A breakout of the lower trendline marks the start of a new downtrend, while a breakout of the upper trendline indicates the start of a new uptrend. The pattern is also known as the wedge chart pattern.
The price target for a breakout or breakout from a symmetrical triangle is equal to the distance between the high and low of the first part of the pattern applied to the breakout price. For example, a symmetrical triangle pattern might start at a low of $10 and move up to $15 before the price range narrows over time. A breakout from $12 would imply a price target of $17, or $15 – $10 = $5, then +$12 = $17.
The stop-loss for the symmetrical triangle pattern is often just below the breakout point. For example, if the aforementioned security exceeds $12 on high volume, traders will often place a stop-loss just below $12.
Symmetrical triangles differ from ascending triangles and descending triangles in that the upper and lower trendlines both slope towards a central point. In contrast, ascending triangles have an upper horizontal trendline, predicting a potential breakout higher, and descending triangles have a lower horizontal trendline, predicting a potential breakout lower. Symmetrical triangles are also similar to pennants and flags in some ways, but pennants have ascending trendlines rather than converging trendlines.
As with most forms of technical analysis, symmetrical triangle patterns work best in conjunction with other technical indicators and chart patterns. Traders often look for a high volume move as confirmation of a breakout and can use other technical indicators to determine how long the breakout might last. For example, the Relative Strength Index (RSI) can be used to determine when a security has become overbought following a breakout.
Real example of a symmetrical triangle
The following chart shows an example of a symmetric triangle pattern in Northwest Bancshares (NWBI):
In this example, Northwest Bancshares forms a symmetrical triangle that could precede a breakout. The price target for a breakout would be $19.40, or $17.40 – $15.20 = $2.20, then + $17.20 = $19.40. The stop-loss would be $16.40 for a breakout or $17.20 for a breakout.