It is a continuation pattern that shows periods of congestion in a trend before it continues. It can be seen both in the uptrend and downtrend.
This consolidation/congestion holds a lot of uncertainty because its hard for traders to predict where the market is going for meantime, so it is very important to wait for the market to break out of consolidation.
A symmetrical triangle is made from the convergence of an ascending support line and descending resistance line. Prices make lower highs and high lows as it swings back and forth as it gets closer to the end of the triangle/apex and then breaks out strongly.
Let’s take a look at the illustration below;
The price break is the confirmation of the trend direction. When formed in an up trend, the break and close of candle above resistance trend line gives a confirmation for a continuation in the trend. While a break on support gives a confirmation for a change in the trend since symmetrical triangles can also be reversal patterns.
When formed in a down-trend, a break and close of candle below support trend line gives a confirmation for a trend continuation while a break on resistance shows a likelihood for a change in direction.
To trade symmetrical triangle patterns, it is very important to wait for confirmation by the actual closing of the candle below/above on either the support line or resistance line to avoid false break outs.
We expect the market to move at least the same distance as the one it covered during the formation of the pattern after the break. So the Profit target is got by measuring the height of pattern at formation and projecting that same distance forward. Stop loss is set slightly below the lower level of the pattern for a buy trade/position or above the upper level of the pattern for a sell position.
Let’s look at an example below on CADJPY, Daily chart.
The CADJPY, Daily chart above shows a symmetrical triangle when in a downtrend. The confirmation for a sell signal for continuation is the break and close of the candle below the support line as shown.
So the Profit target is got by measuring the height of pattern (H) at formation and projecting that same distance (H) downwards as shown in the chart above. Stop loss is set slightly above the upper level of the pattern.
How long you should hold an open position, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer, this...