Ease My Trip : Symmetrical Triangle

The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows. When these points are connected, the lines converge as they are extended and the symmetrical triangle takes shape.


Trend: In order to qualify as a continuation pattern, an established trend (at least a few months old) should exist. The symmetrical triangle marks a consolidation period before continuing after the breakout.

Four (4) Points: We know that we need at least 2 points to form a trend line and to form a symmetrical triangle we need 2 trend lines. Therefore, a minimum of 4 points are required to begin considering a formation as a symmetrical triangle. The second high should be lower than the first and the upper line should slope down. The second low should be higher than the first and the lower line should slope up. Ideally, 5 points are enough to form a symmetrical triangle (2 on the upside trendline and 3 on the downside trendline)

Volume: As the symmetrical triangle extends and the trading range contracts, volume should start to diminish. This refers to the quiet before the storm, or the tightening consolidation before the breakout.

Duration: The symmetrical triangle can extend for a few weeks or many months. If the pattern is less than 3 weeks, it is usually considered a pennant . Typically, the time duration is about 3 months.

Breakout Timeframe: The ideal breakout point occurs 1/2 to 3/4 of the way through the pattern's development or time-span. The time-span of the pattern can be measured from the apex (convergence of upper and lower lines) back to the beginning of the lower trend line (base). A break before the 1/2 way point might be premature and a break too close to the apex may be insignificant. After all, as the apex approaches, a breakout must occur sometime.


Breakout Confirmation: A break should be on a closing basis for it to be considered valid. Some traders apply a price (3% break) or time (sustained for 3 days) filter to confirm validity. The breakout should occur with an expansion in volume , especially on upside breakouts.

Return to Apex: After the breakout (up or down), the apex can turn into future support or resistance. The price sometimes returns to the apex or a support/resistance level around the breakout before resuming in the direction of the breakout.

Price Target: There are two methods to estimate the extent of the move after the breakout. First, the widest distance of the symmetrical triangle can be measured and applied to the breakout point. Second, a trend line can be drawn parallel to the pattern's trend line that slopes (up or down) in the direction of the break. The extension of this line will mark a potential breakout target.

Comment:

TRADING STRATEGY: Buy on CMP and hold with SL of 338 (clbs) and look for the measured target zone of 578-800 in the coming months.