Leavitt Brothers: Education - Chart Patterns

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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.

TWR was generally a neutral stock. Although it was in a slight uptrend, the size of the symmetrical triangle neutralizes whatever momentum existed on the rally into the pattern. In this case the stock could breakout either way. Although there were a few black volume surges within the pattern, the volume is neutreal, so as a trader you really have to wait until the stock makes its move. Obviously you can see the result...with volume to support the move.

WMS was in a steady uptrend when it traded into this large 6-month symmetrical triangle. The size of the pattern neutralizes the strong move into the pattern, so the stock simply becomes trendless rather than a strong stock in a steady uptrend. The size of the pattern was about 10 points, so that is our first expected price move. Once that is accomplised, use the rally into the pattern to project the second target.

CTXS was in a downtrend when it traded into this symmetrical triangle. If the pattern lasts a couple months we would consider the stock to be weak and is a downtrend (and most likely to resolve itself to the downside), but the pattern is big enough to neutralize the battle between the bulls and bears. The stock did continue the move down, but it could have broke out either way.

DISH was trending sideways for 6 months when it made a series of higher lows and lower highs to form this symmetrical triangle. Given the neutrality of the pattern, the stock could have broken out either way. Notice how volume fell off towards the end of the pattern and then ramped up after the break. That's exactly what you want to see.

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