Symmetrical Triangles
Neutral symmetrical triangles represent neutral periods of doubt and indecision. They are characterized by a series of higher lows and lower highs as the forces of supply and demand are nearly equal. Each rally is seen as a selling opportunity while each dip is met with buying. The pattern is typically large and takes several months or more than a year to form.
The best breakouts occur ½ to ¾ of the way through the pattern. A stock seems to gain energy as it is compressed into the triangle, but that energy dissipates beyond the ¾ point. It is recommended that traders abandon a stock that trades beyond the ¾ mark for very little movement is likely to occur. Volume typically diminishes as the pattern develops because traders become more and more unsure as to the stock's future direction. Then, seemingly without warning, the stock explodes out of the pattern.
Symmetrical triangles can form in trends, but their sheer size will often neutralize whatever momentum existed when the pattern first started to form. So when an extremely large pattern forms one can never be sure which way it will break until it actually happens. Rarely are any reliable clues given. A trader can only wait until the stock “makes up its mind;” then and only then should money be committed to a position.
Breakouts to the upside follow the same guidelines as bullish symmetrical triangles and breakouts to the downside follow the same guidelines as bearish symmetrical triangles.
The expected price movement upon breakout is approximately equal to the widest part of the pattern.
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