A symmetrical triangle is a chart pattern characterized by two converging trend lines connecting a series of sequential peaks and troughs.
A symmetrical triangle chart pattern represents a period of consolidation before the price is forced to breakout or breakdown. A breakdown from the lower trend line marks the start of a new bearish trend, while a breakout from the upper trend line indicates the start of a new bullish trend. The pattern is also known as a wedge chart pattern.
The price target for a breakout or breakdown from a symmetrical triangle is equal to the distance from the high and low of the earliest part of the pattern applied to the breakout price point. For example, a symmetrical triangle pattern might start at a low of $10.00 and move up to $15.00 before the price range narrows over time. A breakout from $12.00 would imply a price target of $17.00 (15 - 10 = 5 + 12 = 17).
The stop loss for the symmetrical triangle pattern is often just below the breakout point. For example, if the aforementioned security breaks out from $12.00 on high volume, traders will often place a stop-loss just below $12.00.
Symmetrical triangles differ from ascending triangles and descending triangles in that the upper and lower trend lines are both sloping towards a center point. In contrast, ascending triangles have a horizontal upper trend line, predicting a potential breakout higher, and descending triangles have a horizontal lower trend line, predicting a potential breakdown lower. Symmetrical triangles are also similar to pennants and flags in some ways, but pennants have upward sloping trend lines rather than converging trend lines.
As with most forms of technical analysis, symmetrical triangle patterns work best in conjunction with other technical indicators and chart patterns. Traders often look for a high volume move as confirmation of a breakout and may use other technical indicators to determine how long the breakout might last. For example, the relative strength index (RSI) may be used to determine when a security has become overbought following a breakout.
The following chart shows an example of a symmetrical triangle pattern.
Chart courtesy of StockCharts.com
In this example, Northwest Bancshares Inc. is forming a symmetrical triangle that could precede a breakout. The price target for a breakout would be $19.40 (17.40 - 15.20 = 2.20 + 17.20 = 19.40). The stop-loss would be $16.40 for a breakdown or $17.20 for a breakout.