- Symmetrical triangle formation is offering us a great long trade opportunity.
- Analysis of how we can take the trade adjusting risk along the way.
- Explaining why a pattern like this is so beneficial for traders to understand.
Symmetrical Triangle
Triangles are popular technical analysis patterns because they have good reliability and the structure of the pattern is easy to understand. it also gives a relatively clear stop loss and profit target.
We can trade triangle patterns in many different ways and for the triangle, we see formed on CL, I am going to show you a way we can trade it similar to how we would apply a range-bound method with the potential of a 5:1 risk reward ratio if the break out occurs still in play.
Firstly, take a look at the pattern below:
The triangle is forming perfectly, with (4) being the first trade we would have been able to take. (1), (2), and (3) were our connection points, so we would not have been able to trade from there. Taking a short at (4) would have been a risky trade since there was potential for a bullish breakout.
From here, we can see price has fallen to the low side of the triangle, and there is a decent amount of support too. The US session has not opened yet. However, we could initiate long positions at this point with the understanding that probabilities are telling us that there is a greater chance of a bullish move from here, back up to target one at $80, than there is of the triangle breaking to the downside. If this occurs, we could move our stop to break even, close half the position, then leave the rest of the position open for a move higher to target 2 in the hope of a bullish break of the triangle.
It is important to comprehend the objectivity that is required when trading patterns like this. Never get married to the pattern, it may work, but it may not. All we can do as traders is think in probabilities, but that doesn’t mean it will work every time. It may only work 70% of the time. Traders NEED to understand this because if patterns like this do not work out, it’s not because they did anything wrong. It’s because the pattern just failed this time. There was still a 30% chance that it would fail.
The reason I like a setup like this so much is that the probabilities are in our favor by a decent amount, but so is the risk-reward ratio. Usually, a 1:1 risk-reward ratio can be mathematically calculated as a 50/50 trade in terms of it being a winner or loser. With a pattern like this, we have an edge in both departments, and it is exactly why professional traders do so well. They understand that expectancy can be molded in their favor greatly.
Think objectively and in probabilities
