A symmetrical triangle has formed in the Dow Jones Industrial Average (DJIA) price chart over the past month, as shown in the chart above. A symmetrical triangle forms when two converging lines can be drawn on a price chart connecting a series of peaks and troughs. When connected, these lines converge on each other, and if continued, will eventually meet at an apex. For a triangle to be valid, a minimum of two peaks (lower highs) is required along the upper line of a triangle formation. This is also true for the lower line, which must include at least two troughs (higher lows) that can be connected.
Symmetrical triangles are often thought of as continuation patterns, but they can also serve as reversal patterns. A continuation pattern is one in which the trend prior to entry into the pattern is continued after price exits from the pattern. A reversal pattern is one in which price reverses direction after exiting from the pattern. It’s highly uncertain ahead of time whether the breakout will be to the upside or downside, which is why it is important to wait for price to leave the formation and confirm either a continuation or reversal.
Confirmation of a breakout or breakdown from a symmetrical triangle should happen on a closing basis with an expansion in volume, especially if the breakout is to the upside. False or failed breakouts can often occur with symmetrical triangles, in which price will often return into the pattern and break out in the opposite direction.