MerexMarkets has been bringing you all types of trading patterns to help you improve your Forex understanding, because at MerexMarkets we believe in knowledge and the power it brings, and we want all MerexMarkets clients to have the choice to learn and understand Forex if they wish to.

MerexMarkets would never want anybody to blindly put faith in us, and we do want our clients to feel the freedom and ease of understanding Forex so they can feel like they have control over their MerexMarekts accounts.

So today MerexMarkets brings you an explanation of the symmetrical pattern.

The first type of triangle that MerexMarkets will examine in this text is the symmetrical triangle which represents the purest form of the triangle as a continuation pattern. In this case, the price movements during the triangle fail to present any kind of scenario with respect to the bullish or bearish nature of the eventual breakout. The sellers and buyers are close to a state of equilibrium, and neither side is willing to put too much money into a scenario that will favor a long term breakout of the triangle. The behavior of technical indicators, such as moving averages, and most kinds of oscillators is also predictable; they will enter a quiet hibernation phase during which all movements are subdued, and the amplitude of the oscillations contract.

Symmetrical triangles develop in quiet markets. They are often seen during periods that lead to major news announcements, or when liquidity in the market is low. Usually, the larger players will guard the upper and lower bounds of the triangle, leaving the smaller speculators and traders the task of driving the price action in between. Of course, the smaller players are still very large in comparison to the capital of the retail trader, but in terms of the forex market, they are the smaller hedge funds, non-bank actors who are still bound to follow the desires of the largest commercial banks and government institutions.

As with all triangles, the identification of this pattern is easy, and the positioning of stop loss or take profit orders is also straightforward. As soon as a contracting range pattern is established, the trader can anticipate the formation of a triangle, and then test his assumption with the related technical tools.

Let’s examine this symmetrical triangle on the hourly chart of the USDCAD pair. As we can see, after a brief spike on 8th April, 1 am, the price begins a six hour long downward movement, which culminates in the symmetric triangle which depicted in blue on our chart. The slope of the demand line (the lower side of the triangle) is a bit steeper than the slope of the supply line, but the difference is not significant to justify the identification of an ascending triangle on this chart. reflecting the confusing nature of the symmetrical triangle, the eventual breakout that comes at around April 9th is a false one, resembling an uptrend at first, but eventually reversing and completing a 130-pip movement to the downside between 1 am and 9 am. These fake breakouts are very common with symmetrical triangles, and complicate the trading decisions

If we had entered a position here, it would need to be confirmed by some kind of crossover, and/or extreme value on a range indicator, such as the RSI, orStochastics. Better yet, we would await clear signals and a number of closing prices before we could commit our capital. The symmetrical triangle is a difficult to interpret formation, and the directionless trading that may follow it often does not present the best risk/reward potential for the beginning trader.

By MerexMarkets