How to Trade the GBPUSD Symmetrical Triangle Pattern
- Symmetrical triangles form when buying and selling pressure is at equilibrium
- Forex symmetrical triangles usually precede a major price move
- GBPUSD is currently trading within a symmetrical triangle and is poised to breakout
Since reaching a high of 1.6821 on February 17th 2014, GBPUSD has traded in a range that has been narrowing. Lower swing highs and higher swing lows compressing form a symmetrical triangle. Neither GBPUSD buyers nor sellers can gain an upper hand. Usually, a breakout happens a third of the way within the triangle.
Usually, a triangle occurs when there is a big fundamental news item that is around the corner. Tuesday’s Consumer Price Index (CPI) and the FOMC U.S. interest rate decision could be the catalyst needed to break GBPUSD out of its symmetrical triangle. These announcements could give either the bulls or bears the confidence they need to take control and move price in their respective directions
Learn Forex: GBPUSD Daily Chart Symmetrical Triangle
Created with Marketscope 2.0
Take a look at the daily GBPUSD daily chart above. Notice that any price advance has been capped by a trend line created by the two yellow-circled swing points. In addition, any price decline has been halted by a support by a rising trend line established by two yellow-circled swing points. The latest candles is a doji which highlights the indecision of the pattern itself.
A breakout strategy is one most used to trade the symmetrical triangle pattern, although some traders may attempt to trade within the triangle buying at support and selling at resistance. In a breakout strategy, traders will wait until price moves above resistance before entering long or waiting until price moves below support to enter short.
In the GBPUSD symmetrical triangle above, buyers will want to see price close above 1.6672 before entering. Next, a protective stop can be placed a few pips below the last swing low near 1.6579. By measuring the height of the triangle, we get 216 pips. A price target can be projected at 1.6888.
On the other hand, a close below 1.6570 would be a sign for bears to jump in short. Projecting the height of the triangle of 216 pips down from the swing low we get a price target at 1.6394. If we get a bearish close below symmetrical triangle support, we would look to place a protective stop just above the pattern near 1.6672.
Symmetrical triangles can provide excellent trade setups with a well-defined risk to reward. Triangles may not be able to tell traders a specific direction of a breakout, however, they can give traders an indication of how far a move can travel.
---Written by Gregory McLeod Trading Instructor
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