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How to Trade Symmetrical Triangles

How to Trade Symmetrical Triangles

2011-09-20 11:19:00
Walker England, Trading Coach,
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Identifying symmetrical triangle patterns can become an asset to a trader in any market. To take advantage of the pattern, first we must be able to identify it. A symmetrical triangle is simply defined as a technical pattern forming a triangle from a descending resistance line and an ascending line of support.

These lines of support and resistance can be found by connecting the wicks of candles on your chart. On the EUR/USD two hour charts below, resistance is defined by connecting the September 6th high at 1.4285 with the September 15th high of 1.3936. Support is derived by connecting the September 11th low at 1.3494 and the September 19th low of 1.3585.

How_to_Trade_Symmetrical_Triangles_body_Picture_5.png, How to Trade Symmetrical Triangles

(Created using FXCM’s Marketscope 2.0 charts)

Once a symmetrical triangle is found, our two trading options become clear. The first is to trade price, as it continues to range, inside of the triangle. In our example we would look for the EUR/USD to advance towards our resistance line currently residing near the 1.3800 price handle. Limits should be placed at support near 1.3600. Stops should be placed above our resistance line at 1.3850, creating a favorable risk reward ratio.

How_to_Trade_Symmetrical_Triangles_body_Picture_7.png, How to Trade Symmetrical Triangles

(Created using FXCM’s Marketscope 2.0 charts)

Option two for trading, is to wait for the EUR/USD symmetrical triangle to break. A breakout occurs when price would breach our support and resistance lines created with our connected highs and lows. Entry’s to BUY should be placed above resistance at 1.3850 and Entry’s to SELL below support at 1.3550. Stops should be placed between current support and resistance at 1.3700, with limits looking for new highs and lows for a minimum 1:2 risk reward ratio.

Regardless of your opinion, understanding symmetrical triangles can assist us in our trading decisions. Identifying support and resistance is the key. Once these levels are found we are free to implement the strategy of our choosing by setting our entry’s, stops and limit orders appropriately. For additional research on technical analysis, I would suggest the following resources.

Additional Resources

Trading Breaktouts in Forex

Trading Ranges in Forex

Trading Support and Resitance

Walker England contributes to theInstructor Trading Tipsarticles.To receive more timely notifications on his reports, emailinstructor@dailyfx.comto be added to the distribution list.

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