Have you taken a long flight before?
Personally, I hate to fly far. I’d feel restless as the aisles are narrow and the seats are tiny with no legroom to move.
Anyway, if you're travelling from Asia, the plane that you're in, would land to ‘transit’ in Dubai International Airport first.
The advantage of plane transit is it’s cheaper because you as the passenger, don't really need to do anything at the airport like checking out and in.
Another benefit of transit is it allows the plane to be refueled for its next long haul flight.
Similar to plane transit, the next chart pattern also adopt a similar concept.
After a strong uptrend, the stock would consolidate to digest the gains made from the recent price run.
If you trade a stock with this setup in a strong market condition, be prepared to see your profits soar more than 50% or more.
Imagine you grab few opportunities like that. You'll have more buying power to pursue whatever you dream of.
Continue reading to learn more about the next chart pattern.
Symmetrical Triangle is a chart pattern with a distinctive triangular shape. To create this outline, connect two straight lines.
It's more than that. These two converging lines comprise of lower highs and higher lows. The bottom of the triangle that connects the higher lows is an up-sloping support trend line. The top that connects the lower highs is down-sloping resistance trend line.
This formation happens when there’s indecision in market direction. Here’s where the bullish buyers are confident about the market and want to own more, i.e., top triangle. It's the opposite for the bearish sellers. They are fearful and want to sell more. i.e., bottom triangle.
Most of the price action is within the triangle formation. You want to buy once the price breaks above the upper trendline of the triangle.
The chance for a breakout from the symmetrical triangle is high after an uptrend. It’s due to the bullish sentiment supported by the underlying support in the chart.
WHY IS IT FORMED
Indecisiveness causes price movements to form the chart pattern. The prices zigzag into a triangular shape. It's due to equal buying pressure and selling pressure.
When there's more buying than selling, a breakout occurs, and the price starts to rise. Such breakout is suitable for an entry point.
Besides indecisions in price actions, there are other reasons for the pattern setup.
It might be subtle signs of price anomaly in an uptrend. Or there might be something exciting about to happen in a downtrend.
So here’s a quick idea how price actions shape a symmetrical triangle.
Identify a series of higher lows and lower highs. Connect these points for the former as well as latter with straight lines.
When you join the higher lows by a straight line, you’ll get a sloping uptrend. That line represents the bottom side of the triangle. Draw another straight line connecting the lower highs. You’ll get a sloping downtrend line that forms the upper part of the triangle.
The price usually trades between trend lines which act as support and resistance. It's to prevent the price from breaking through to new highs or lows.
It’s normal for failed attempts to push prices higher. It might be due to the strong resistance price level.
But here’s the positive bullish news.
Lower highs and higher lows will be shallower than the last, taking on the raw shape of a sideways triangle. This process will take some time.
When these two lines converge on the right side of the chart, you’ll get a triangle shape. You can also add an imaginary line joining the left end of these lines to show the previous price uptrend.
Here’s a list of critical things to look for in a symmetrical triangle. See image above for illustration.
There must be an existing uptrend that lasts for few months to pass as a continuation. The pattern serves as a consolidation period before climbing higher after the breakout.
You need at least four points and two trend lines to form the chart pattern. See image above.
A diminishing volume is a sign of tightened price range in the symmetrical triangle. The volume in the pattern should dry up before the price breaks out in big volume.
The symmetrical triangle can extend from more than three weeks to several months.
“If stock rallies before a symmetrical triangle, the stock will then move higher. And a stock falls before the chart formation, and the stock usually continues lower.”
The above assumptions above is wrong.
Symmetrical triangles can't make any prediction on the direction of the price breakout. Resolve the direction of the potential breakout after the break has occurred. Don’t gamble and guess the breakout direction. Let the price action tell you what to do.
WHEN TO BUY & SELL
Price and volume are the main components to a breakout in the chart pattern.
Here’s the first buying method. To look for a breakout to above, find stocks that close outside of the chart formation with a pickup in volume. See below.
The next method is to watch for the price to break out of the triangle and return to test the support at the top trend line.
Ok, there are two ways to sell-off your shares.
The first method, you can place the stop loss below the horizontal resistance line.
The next option is to wait for the price to break out of the top. Then sell your shares once it hits your profits target, i.e., 5%, 10%, 15%, etc.
You can also sell when the price action falls below the support level such as simple moving average.
The symmetrical triangle develops during an uptrend as a continuation chart pattern. Connect two lower highs and higher lows. When you lined these top and bottom points, it'll converge to shape the chart pattern.
It's considered a continuation and trending pattern.
To buy, place a trade when the price breaks through the top triangle. Remember to trade in the direction of the breakout. Put the initial stop loss on the opposite side of the triangle or 10% below the buy point, whichever is lesser.
Another way is by waiting for the price to return and buy once the price has found support (in the case of a long trade). The stop loss would go below the support levels or 10% below the buy point, whichever is lesser too.
You can place the profit target at 5%-20% above the buy point. Or you can sell when the price drops below the moving averages such 10, 50, 100 or 200 moving average line.
Finally, always confirm the direction of the trend first before trading
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