Talking Points

-Triangle price patterns can be used in Forex trading to identify potential breakout setups

- Symmetrical triangles are formed when a rising trend line and falling trend line converge

- Traders can look for the breakout from the symmetrical triangle to signal the continuation of the USDMXN thrust higher

What is a symmetrical triangle pattern?

A symmetrical triangle pattern is consolidation price pattern composed of higher swing lows and lower swing highs trapped between rising and falling trend lines. Usually, these price patterns form after a large trending move as buyers and sellers decide where to take price next.

Learn Forex: Symmetrical Triangle

Symmetrical triangles get their name because the upper and lower trend lines are inclined about 30 degrees to the horizontal. The price action reflects the balance between buyers and sellers. The balance may be shifted to either the buyer’s side or the seller’s side by some sort of fundamental announcement like this Friday’s US employment number.

Usually, a breakout happens in the first two thirds of a triangle. After the breakout, traders can estimate a minimum profit target by measuring the height of the triangle and projecting it from a potential breakout area. However, if price action makes it all the way to the apex before breaking out, then the chance of a big move diminishes. Think of price action within a triangle like two boxers slugging it out in a boxing ring for 11 rounds, each is too tired and worn out to knock the other out and the fight ends in a draw.

Learn Forex: USDMXN Symmetrical Triangle

(Created using FXCM’s Marketscope 2.0 charts)

Trading USDMXN

Taking a look at the current USDMXN daily chart, you can clearly see price action bound between a descending trend line that connects the 9/3 swing high of 13.326 to 10/3 swing high of 13.3443 and a rising trend line that connects the 9/19 low of 12.5818 to the 10/17 low of 12.747. Both trend lines converge at the 13.068 apex. Since the triangle is resting above the 200 simple moving average, a key indicator that traders use to determine bullishness or bearishness, an upside bias is considered more likely.

Traders will watch price action for a daily close above the upper trend line of the symmetrical triangle to confirm that the breakout is a real one and not a fake out. Stops can be placed either at the middle of the triangle pattern or just below the last swing low. In the case of the dollar peso, the triangle measurement objective shows that another 8000 pip move may be around the corner.

---Written by Gregory McLeod Trading Instructor