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While there are tools like the average directional index to measure the strengths of trends, how do you analyse the market when there is no trend?
This is where the symmetrical triangle plays a role, as it deals with a situation where the market is neither bullish nor bearish. It helps in understanding how the market was before moving sideways and also helps in making buying and selling decisions when the stocks break out.
Resistance and support in technical analysis
Securities prices decline owing to ample supply and low demand in bear markets. Buyers/bulls invest in such shares when prices fall too low to benefit when prices rise.
Demand for such assets rises, preventing further price declines. This is known as Support, where prices stop falling.
Similarly, bullish markets boost prices due to significant buying demand. Sellers sell when securities attain high values and have met their target price. This increases supply and influences price increases.
This point, where prices stop rising is called Resistance.
Breakout or breakdown
After the prices reach support and resistance points, they do not fluctuate much for a specific period.
Once the stock breaks either of these price points and moves out of support or resistance points, creating a downtrend or uptrend, respectively, it is called Breakout or Breakdown.
Lower highs and higher lows
Lower highs and higher lows are price points at which securities close.
When the security closes at a high price today, but that high is lower than the previous day’s high price at the time of close, it is called lower high.
When the security closes at a low price today, but that low is higher than the previous day’s low price at the time of close, it is called higher low.
Formation of the symmetrical triangle
A minimum of 4 price points is required to form a symmetrical triangle – 2 points each representing high and low closing prices.
These points should follow the higher lows and lower highs trend to form a symmetrical triangle.
A trend line is drawn to join a high point and a lower high point, forming the upper line of the triangle, which is the Resistance.
Another trend line is drawn to join a low point and a higher low point to form the lower line of the triangle, which indicates the support line.
The point at which these two triangles meet is called the Apex.
Both lines of the triangle should have near-equal slopes to form a symmetrical triangle.
Bullish symmetrical triangle
A continuation pattern, where the market is in an uptrend before the formation of the triangle, indicates a bullish market. Once the triangle is made, no trend takes dominance. After a certain period, when the stock breaks out, it again takes an upward trend.
Bearish symmetrical triangle
Once the bears take over, the stock breaks out of the support line and continues its downward trend towards the bottom of the chart. This indicates the continuation of a bearish market trend.
What does a symmetrical triangle indicate?
- Buyers and sellers are not aggressive in their positions. Thus, there is no uptrend or downtrend in the market.
- Neither of them can dominate the market because of equal pressure from both sides. Hence, the prices are moving sideways, i.e., there is no massive rise or fall in the stock price.
Symmetrical triangle pattern in trading
Target Price – This is the future price of the stock at which the trader wants to buy/sell shares to maximise profits.
Stop Loss – This is a predetermined price point where the trader decides to close a trade to limit losses.
Entry Point – This is where the trader wishes to buy or sell securities.
Exit Point – Where the trader takes an exit by selling securities.
Bottomline
Like the other indicators, the symmetrical triangle is also a tool that helps in analysing and predicting movements but is not an assured sign of how the prices of securities will fluctuate.
However, indicators like the symmetrical triangle offer better results when combined with other tools available for technical analysis.
FAQs
A symmetrical triangle pattern is not necessarily bullish or bearish. It indicates a period of consolidation before a breakout or breakdown. The direction of the breakout or breakdown depends on the prevailing trend and market sentiment.
A symmetrical triangle in intraday trading is a chart pattern that shows price consolidation and breakout. It has two converging trend lines that connect lower highs and higher lows. The breakout direction is unknown and can follow the market trend.
The three types of triangle patterns are:
– Ascending triangle: bullish pattern with a horizontal upper trendline and a rising lower trendline.
– Descending triangle: a bearish pattern with a horizontal lower trendline and a falling upper trendline.
– Symmetrical triangle: a neutral pattern with converging trendlines that slope in opposite directions.
A symmetrical triangle pattern is a neutral pattern. Depending on the market trend and sentiment, it can be either a continuation or a reversal pattern. The direction of the breakout is unknown until it occurs.
The target price of a symmetrical triangle is the expected price movement after a breakout or breakdown. It is the distance between the high and low of the earliest segment of the pattern applicable to the breakout price point.