How to Analyze Stocks Using Symmetrical Triangles

There are three types of triangle patterns: symmetrical, ascending and descending.  Symmetrical triangles are generally considered neutral, ascending triangles are bullish, and descending triangles are bearish.  Today, symmetrical triangles will be discussed and will defer the other two types of triangles to future posts.
A symmetrical triangle shows two converging trend-lines: one is ascending and the other is descending.  They are usually characterized by a series of higher lows and lower highs as the forces of supply and demand are nearly equally until a breaking point is reached. The best patterns are typically large and takes several months to form.

The best breakouts occur half way through the pattern, not waiting until the two trend-lines meet. Volume typically diminishes as the pattern develops because traders become more and more unsure as to the stock's future direction. Then, without warning, the stock explodes out of the pattern giving us a buy signal on the breakout.
Breakouts to the upside in general must be accompanied by a significant increase in the daily volume to confirm the breakout. Failure to accomplish this doesn't automatically render the trade as "bad," but it does raise a red flag because there is not a lot of support for higher price levels. Besides volume, I usually look for a close above the most recent high as a short term trend line break as well. If volume does not accompany the break, and if the stock fails to make a higher high within a reasonable amount of time, you should move up your stop orders to protect what profits are left.

A good example of symmetrical triangle can be seen in Packaging Corp of America (PKG).  Below is a year to date chart containing the symmetrical triangle.  In October, PKG was finally able to make a breakout of this symmetrical triangle. After reaching as high as $26, PKG now on the decline in an attempt to retrace back to the upper trend-line of the symmetrical triangle.  My guess would be that PKG will start moving higher once the retracement is complete.  A good entry point for those who are interested in investing PKG would be between $24 - $24.50 in my opinion.


Once you get the hang of these triangle patterns, you can start looking for them in stocks and invest accordingly.  Has anyone have experience with triangle patterns?  Feel free to share your personal lessons learned using comments below. 

Other Posts:
Using Downtrend Line to Trade Stock like CAGC

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