When looking into symmetrical triangle patterns, the key characteristic will start with a rally to a new high. After a slight pullback to a support level, a second rally will take it just below the high. Then, a second decline will follow and will finish just off the support level (intermediate term). Finally, a strong volume breakout will go above all the trend lines and join the two highs together.
By adding the breakout level and the height of the largest vertical side of the triangle, you can calculate the technical targets.
Most of the time, symmetrical triangles are a sign of a continuation at the current trend, but it should be noted that they can also mark trend reversals. Whichever way it is going, the next move will only be shown after a valid breakout.
Four Points - In order for the symmetrical triangle to form, there needs to be four points in total. Firstly, two points are required for a trend line. Then, two different trend lines are needed for the triangle which means four in total. Point number four (the second high) should always be lower than the second point (first high) - this will result in a downward sloping upper line. On the lower line, it should be the opposite which should see the line slope upwards. Before the breakout occurs, the pattern will fully form with six points.
Trend - Much like the others, a previous trend has to exist for it to be considered a continuation pattern. Also, the trend has to have existed for longer than a couple of months. Before carrying on after the breakout, the symmetrical triangle shows a consolidation period.
Duration - In truth, the triangle has been known to extend from anywhere between a couple of weeks and a number of months. Normally, the duration will be around three months with anything less than three weeks falling into the pennant category.
Volume - Over time, the volume will start to fade away as the triangle extends and we see a contraction in the trading range. In general terms, this is very much the ‘eye of the storm’ and a breakout will soon change this.
Breakout Direction - Attempting to predict the direction of the breakout is actually very tricky and although we like to guess, the future direction can only really be seen after the breakout itself.
Breakout Time Frame - Between 1/2 and 3/4 of the patterns development, this would be considered the perfect time for a breakout. By measuring the distance between the apex and the start of the lower line, the time-span can be estimated. When assessing this, you need to be careful because a break too close to the apex can be considered somewhat insignificant. Similarly, a break could be considered premature if it is before the half way point.