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.)
As the upside potential is limited by the 2.60 resistance level, a bull 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 2.60 (measured move of the symmetrical triangle pattern).
|Trading Symbol||HG X6|
|Contract Expiry||Nov 2016|
A target of 2.60 is calculated by anticipating a measured move between the symmetrical triangle’s low and high and then projecting this range to the upside from where copper broke to the upside. Another idea is to take full or partial profit at the next major resistance level set at 2.45.
Once the position is open, if prices fall below 2.08 the futures position should be closed as the strategy failed to materialize.
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