Symmetrical Triangle Patterns

Symmetrical Triangles can be characterized as  areas  of  indecision.  Typically,  the  forces  of  supply  and  demand  at  that  moment are considered nearly equal. Each new lower top and higher bottom becomes more shallow than the last, taking on the shape of a sideways triangle. Eventually, this indecision is resolved and prices usually breakout of this formation to the  upside  or downside  (often  on  heavy  volume).  In  our  example  below,  we  demonstrate  a  long  symmetrical  triangle  breakout  strategy.

ADAPTED OPTION STRATEGY: BULL CALL SPREAD

As the upside potential is limited by the 2.489 resistance level and the measured move target of the symmetrical triangle pattern at 2.624, a bull call spread allows you to lower the cost of the strategy (in comparison to a straight long call) by selling a call out of the money. As a result, the strategy consists of the simultaneous purchase of a call with a Strike at 2.25 and selling a call with a Strike at 2.65 (slightly above the target resistance level).

BULL CALL SPREAD: Leg 1

Trading Symbol HG Z6
Option Type CALL
Option Strategy BUY
Strike 2.25
Expiration Dec 2016

BULL CALL SPREAD: Leg 2

Trading Symbol HG Z6
Option Type CALL
Option Strategy SELL
Strike 2.65
Expiration Dec 2016

ADAPTIVE FUTURES STRATEGY

Trading Symbol HG Z6
Strategy LONG
Entry Point 2.26
Target 2.63
Stop Loss 2.09
Contract Expiry Dec 2016

BROADENING WEDGE FORMATION: ZS H7 FEBRUARY 21ST

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 2.624 is calculated by anticipating a measured move between the symmetrical triangle patterns low and high (dotted arrow on the chart) and then projecting this range to the upside from where copper prices broke out. Another idea is to take full or partial profit at the next major resistance level set at 2.489.

POTENTIAL DOWNSIDE PER CONTRACT

Once the position is open, if prices fall below 2.09 the futures position should be closed as the breakout strategy failed to materialize.

Symmetrical triangle patterns happening in the markets now

EURO: 6E

S&P 500: ES


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