The Symmetrical Triangle Bottom pattern forms when the price of a security fails to retest a high or a low and ultimately forms two narrowing trend lines. Points 1­ 5 form the triangle patterns. The price is expected to move up or down past the triangle depending on which line is broken first.

This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout).

Trade Idea

If price breaks out from the bottom pattern boundary, day traders and swing traders should trade with the DOWN trend. Consider selling the security short or buying a put option at the downward breakout price level. To identify an exit, calculate the pattern height by taking the difference between the highest high and the lowest low. Then, calculate the target price by subtracting the pattern height from the breakout price, which is the lowest low.

To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to buy back a short position or sell a put option at or above the breakout price.