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Hey, this is Sasha and welcome to another episode of "Let's Talk Stocks."
Today, we're going to go back to another technical analysis basics video. We're going to look at Symmetrical Triangle Patterns.
We're going to take a look at both the bullish and the bearish case scenario. We are going to take a look at:
- What they look like;
- Previous trend;
- Entry point; and
- A few final tips
Let's start with the bullish scenario
I want you to keep in mind that the symmetrical triangle pattern is a continuation pattern. Which means, it continues. It's just a pausing pattern that slows things down. Allows things to digest and then moves forward into the same direction that it came from.
You also have reversal patterns that change direction, but this one is a continuation pattern.
What a Symmetrical Triangle Looks Like
You have a triangle that's pretty much like this. It's going into a V formation sideways. Think of it as a bracket on your keyboard.
When you're looking at this, it could almost resemble a pennant pattern, but it's a little bit longer.
When you look at a bullish case scenario for this, it's starting from lower level prices and the stock price then continues to increase until it hits the first resistance level. I'll call it R1.
We then start a pullback, and we start creating a second point this will be our supporting level one.
We'll move up into higher prices, again at resistance level two.
This is where you can slowly start creating a slope where the pattern may slowly begin to looking and evolving like a triangle.
Right now, you don't know if it's going to be a descending triangle or this symmetrical triangle because you only have one supporting point.
But here, as we start continuing and creating, let's say support level two and moving up, and we have resistance level three, you can slowly begin to see how things will evolve.
Now, what happens with this pattern eventually because it is a continuation pattern. This pattern eventually will break out in the same direction that it started from.
This triangle was just a passing moment.
A moment for you to digest the upward trending movement.
Because that movement on this upside was a little too far too fast.
Prices get a little stretched. People think, "Hey, I need to take a few profits." So, it pulls back, but they say hey this is a good deal other people are starting to come in it's a good deal to get into that stock. It's been heading higher. Let me get in on it. They've been waiting.
They continue to do this motion where you know you have some buyers that are selling better. Then, you have other people buying in at lower prices.
It creates this a crowd psychology effect to the point where enough buyers are now fully stepped in. More buyers are getting in to allow the price to continue to move higher.
When You Look at Volume
You want a higher volume in the direction that it's moving or continuing. So, higher volume there.
When you're doing this consolidation phase, you might get a little bit lighter volume here. So, it'll be light and then more massive volume also as you're moving to the upside.
Now, if you're looking at individual bars, what you'll generally want to see and it's a little harsh to look at those things. Anytime you're getting pops or movements to the upside, and it would be nice to see higher volume there because remember that movement is going to continue into higher prices in the future.
It'd be good to see those. But it's a little bit more difficult because usually in this consolidation triangle phase, it's a little bit more of a distribution pausing pattern. A little bit less volume will be traded.
As far as the Projection Goes
You're looking at kind of this R1, S1 -- so resistance one support one that's being created and you're looking at that distance.
If that distance is this long or I'm going to say half of my hand. Then, you'll go about half of the side, and that's your target.
Doesn't always work out that way. Doesn't work out perfectly but this is around your goal on that projection.
Now, in all big case scenario and the way you look at things with time with inflation that thing could run up 10, 20 times higher. If you look at it a hundred years from now, that thing could skyrocket to the moon.
But in general, from a pattern perspective, you're looking for about that range width of the triangle to hit your target.
If You're Looking for Entry Points
One of the proper entry points would be right after we break out of the triangle pattern and just a little above it to give it room to make sure it breaks out.
You could do it also on the bounces. You'll probably notice these on like support two, support three levels.
You could do it there, but that's a little early because what happens is if this thing rolls over. You could be in a little bit of trouble because you don't know if this could start digesting, distributing and then roll over.
Usually, you'll wait till entry point right up here above all these resistance levels or this descending resistance line and when the volume picks up, and it's moving to the upside.
That's what I would do as far as the entry point goes.
Sometimes, you'll also get slight little pullbacks here where this will retest that triangle pattern. Then you could get in it, just on that retesting of that resistance level which will be supported.
That'll be entry point number two.
If We're Looking at the Bearish Case Scenario
It's very similar the main difference is when you're looking at your triangle pattern on the bearish side. Instead of going from lower prices, you're going from higher prices to lower levels. Then you do the same isolation movement, and you'll expect that stock price to head lower.
Here you have resistance levels, and that'll be a one, two, three, four. Here, you have some support levels that it may hit and then again support level 1, 2, 3, 4.
You may not know that this pattern is evolving here up until about the second point even then it's tough to see.
Usually, by point 3 and four is a little easier to see if you're looking at an entry point. This, of course, would be for a shorting opportunity.
But an entry point would be somewhere right after it breaks the supporting level of that symmetrical triangle and then it moves lower, and of course, you're looking for higher volume this time as we go down in price.
You're looking for a heavier volume especially as you break probably lighter volume as you're moving sideways and then maybe heavier volume on that initial sell-off.
That's what you're looking for because you want the volume to always be heavy in the direction that the price is moving to or when the price is moving very quickly. Typically, you'll get heavy volume. They work hand-in-hand together.
That's what you're looking for when you're looking at a symmetrical triangle.
It's a continuation pattern. If you have a bullish movement, you're going from lower prices then you're pausing a bit, and then you're moving higher.
If you're looking for a bearish movement, you're moving from higher prices, and you'll pause a bit, and then it'll move lower.
Then eventually, you might get into lower prices here where the stock basis and then continues moving higher could create a double bottom over here. It could build multiple things here, could digest here, and then continue moving higher.
Remember, this is just a pausing pattern and most of the time stocks appreciate with time.
It's just a question of how long are they going to pause here, or how big is that sell-off.
Also, when you're looking at the distance of how far this will go bearish, it's the same as it would be in the bullish side. You're looking at the range of that triangle in the fatter area and then move it down. That would be your target.
Of course, just like in the bullish scenario, in the bearish scenario, it could come up and retest those levels and then roll over and move into lower prices giving you another entry opportunity if you've missed the first one.
Anyways, that's the symmetrical triangle pattern, and you know it can work in both directions bullish or bearish.