GBP vs USD Symmetrical Triangle Trade 4-13-17

GBP vs USD Bearish Symmetrical Triangle




The symmetrical triangle, also known as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs connecting to a descending trend line and two higher lows connecting to an ascending trend line. The two trend lines meet and form the triangle pattern. The trend lines should have the same degree of slope converging together at a point called the apex. As price reaches closer to the apex it becomes more constricted until eventually price breaks out of the formation usually in the direction of the prior trend. If price violates the formation in the opposite direction of the prior trend then this could signify a reversal and start of a new trend.

Edwards and Magee wrote a book called, Technical Analysis of Stock Trends by Robert D. Edwards and John Magee which was the first book to produce a methodology for interpreting the predictable behavior of investors and markets. In that book they stated that about 75% of symmetrical triangles are continuation patterns. Looking at the charts above we can see that the prior trend before the formation of the symmetrical triangle was bearish, therefore we would suspect the breakout to be to the downside. In all cases we have to prepare for what price might do so for us to be closed minded and believe that the only direction that price will violate is bearish then we are setting ourselves up for failure. In either direction we could expect false breakouts, therefore we have to trade what we see and understand price behavior at support and resistance levels.

The duration of the pattern should be at least a few weeks to normally around 3 months but also may last beyond 3 months to many months

When price violates the trend lines we can usually prepare for a re-test as price return to the breakout point before resuming in the direction of the breakout, therefore we have an opportunity to enter the trade at a better price with less risk as the breakout trader and still offer the same reward.

Looking at the daily chart where we see price currently, we also can see how price rejected the level providing the opportunity to enter at the resistance level of the descending trend line. The H4 chart shows a Three Inside Down formation offering an opportunity to enter the market. With a violation of the previous low of the previous bull candle, I entered the market short. I will monitor this trade throughout and update on the progress. Remember, trees slow to grow bear the best fruit! God bless!


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