If you want to use forex technical analysis and base your forex trading strategy on forex charts then you need reliable chart patterns to trade and they don't come much better than the symmetrical triangle which if traded correctly can give you some great high odds trades and big profits...
As with all chart formation the symmetrical triangle is rooted in investor psychology, so lets look at how and why they form.
Why a Symmetrical Triangle Forms
Symmetrical triangles can be seen as areas of indecision in the market as it pauses and future direction is uncertain.
Typically, the forces of supply and demand at that the time the triangle is forming are considered nearly equal. Attempts to push the currency higher are quickly met by selling into the rally, on the other hand dips are seen as good value and see buying.
Each new lower top and higher bottom becomes more shallow than the last, which gives the symmetrical triangle is distinctive shape.
Eventually, this indecision gives way to action as market sentiment breaks out or in many cases explodes out of this formation.
They normally feature low volatility before a breakout and low volatility when followed by high volatility means the market has decided where to push prices.
They very often form before major events such as economic reports where traders are waiting to see the outcome of the report and how it will affect prices. They can form before important geo- political events as well and are very much a wait and see formation"
A Continuation Pattern
Research has shown that symmetrical triangles normally resolve themselves in the direction of the trend. This means the pattern is normally classed as a continuation pattern.
Taking the Move
Its always best to wait for the break from the triangle and not try and predict the move in advance - wait for confirmation and use a momentum indicator to time your trade. We love using the stochastic indicator (discussed in our other articles) and looking for an up turn in momentum to accompany the move.
We find that the narrower the triangle becomes and the longer it takes to form the better the signal will tend to be.
If you are suing forex charts then you really should look to trade symmetrical triangles, there a great reliable formation and when prices break you can get some high odds trades and great forex profits.
If you want to learn forex technical analysis then make symmetrical triangles, an essential part of your forex education.
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