The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows. When these points are connected, the lines converge as they are extended and the symmetrical triangle takes shape. You could also think of it as a contracting wedge, wide at the beginning and narrowing over time.
Trend: In order to qualify as a continuation pattern, an established trend (at least a few months old) should exist. The symmetrical triangle marks a consolidation period before continuing after the breakout.
Four (4) Points: At least 2 points are required to form a trend line and 2 trend lines are required to form a symmetrical triangle. Therefore, a minimum of 4 points is required to begin considering a formation as a symmetrical triangle. The second high (2) should be lower than the first (1) and the upper line should slope down. The second low (2) should be higher than the first (1) and the lower line should slope up. Ideally, the pattern will form with 6 points (3 on each side) before a breakout occurs.
Volume: As the symmetrical triangle extends and the trading range contracts, the volume should start to diminish. This refers to the quiet before the storm or the tightening consolidation before the breakout.
Duration: The symmetrical triangle can extend for a few weeks or many months. If the pattern is less than 3 weeks, it is usually considered a pennant. Typically, the time duration is about 3 months.
Breakout Timeframe: The ideal breakout point occurs 1/2 to 3/4 of the way through the pattern's development or time-span. The time-span of the pattern can be measured from the apex (convergence of upper and lower lines) back to the beginning of the lower trend line (base). A break before the 1/2 way point might be premature and a break too close to the apex may be insignificant. After all, as the apex approaches, a breakout must occur sometime.
Breakout Direction: The future direction of the breakout can only be determined after the break has occurred. Sounds obvious enough, but attempting to guess the direction of the breakout can be dangerous. Even though a continuation pattern is supposed to break out in the direction of the long-term trend, this is not always the case.
Breakout Confirmation: A break should be on a closing basis for it to be considered valid. Some traders apply a price (3% break) or time (sustained for 3 days) filter to confirm validity. The breakout should occur with an expansion in volume, especially on upside breakouts.
Return to Apex: After the breakout (up or down), the apex can turn into future support or resistance. The price sometimes returns to the apex or a support/resistance level around the breakout before resuming in the direction of the breakout.
Price Target: There are two methods to estimate the extent of the move after the breakout. First, the widest distance of the symmetrical triangle can be measured and applied to the breakout point. Second, a trend line can be drawn parallel to the pattern's trend line that slopes (up or down) in the direction of the break. The extension of this line will mark a potential breakout target.
At times, markets have nice price trends where being long or short for days or weeks will lead to profitability. These are the markets that most new traders make money in by having a bias and holding onto that belief. This usually doesn’t end well because they are unable to understand when the trend is changing. Other markets trade within ranges. These traders buy support and sell resistance over and over. These are the markets that will make them the most money. Then there are times of high volatility and no trend, no support, and chaotic price action. These fake breakouts and momentum that unexpectedly fades and reverses will quickly take profits. It’s time to step back, trade smaller, trade less, and wait for a pattern to emerge from the chaos when the market rewards taking quick profits and punishes your signals. It’s best for most traders to do nothing during corrections and downtrends and wait for an uptrend or bull market to come back. In the current market defense is more important than offense. Keeping your capital safe is more important than trying to grow it. This is the time to focus on: 1.When prices are below the 200-day moving average. 2.Your total risk exposure. 3The VIX levels. 4.The Average True Range. 5.Your position sizing.
Just look what this trading strategy has to say. It's a simple yet quite promising Forex trading method. Trading strategies like this can only be discovered through a long and determined observation of the price behavior. To start:Currency: ANYTime frame: 1 dayIndicators: 5 SMA, RSI 5 Entry rules: Buy when the price crosses over 5 SMA and makes + 10 pips up, the RSI must be over 50. Sell when the price crosses below the 5 SMA and makes +10 pips down, the RSI must be less than 50.Exit rules: not set. It is a very very simple system, yet with quite impressive results.Always remember to take actions/enter the trade only after the signaling candle is closed. This Strategy or trading idea can be used to create more advanced trading version.
Simple trend trading signals have the best chance of having an edge as they create big wins and small losses by their structure of letting winners run and cutting losers short. Also, adjusting a trend signal that is a positive expectancy model with a simple filter can improve its risk/reward ratio. A trader will have to understand how it may alter both the size of losses and the size of winners from a backtest of the original system. Some adjustments can be backtested with the new parameters and others involve a discretionary dynamic to a mechanical system. The traditional view of the RSI is as an indicator of when price action has moved too far and too fast in one direction. For swing and trend trading on the daily chart the RSI is commonly set at 14 days. A 30 RSI means that a chart has become oversold and a 70 RSI can mean that a chart has become overbought. Adding an RSI filter to a trend trading system can stop you from taking a buy signal if a chart is already overbought when an entry signal is given. It can also have you lock in profits if a chart becomes overbought while holding a long position instead of waiting for the cross under to play out. For example a trader may buy the 5/20 day ema crossover on the Goldman Sachs chart based on the backtest data but look to exit near the 70 RSI or not buy the crossover if the signal is given over the 60 RSI. Historically on the GS chart the reward of higher prices tends to diminish as GS has a reading near 70 RSI and it is possible to increase the size of wins many times by locking in profits into the strength of the rally instead of waiting for the 5 day ema to cross back under the 20 day ema as a trailing stop. The possible drawbacks of exiting near the 70 RSI is if you are out you have to wait for a new 5 day / 20 day ema crossover to happen to signal a new entry. If the trend consolidates and continues after you have locked in profits you will miss more upside and reduce the size of the wins that were shown in the backtest. By exiting near the 70 RSI it is possible to lock in more profits on average but not have as big of wins as you will miss parabolic uptrends. Not entering if the RSI is over 60 could reduce the size of your losses when it is too late in a trend and you miss some of the reversals against you. These are suggestions for adding the RSI as a risk/reward filter to a moving average crossover signal but you need to research each stocks chart history to see the best adjustments that you could make to improve on the sizes of wins and losses in a positive way. The below backtesting data is for the pure 5/20 day ema crossover and crossunder strategy is on GS and does not include RSI filter adjustments.