Symmetrical triangle breakouts

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 51.5 target, 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 48 and selling a call with a Strike at 51.5.

BULL CALL SPREAD: Leg 1

Trading Symbol LO X6
Option Type CALL
Option Strategy BUY
Strike 48.00
Expiration November 2016

BULL CALL SPREAD: Leg 2

Trading Symbol LO X6
Option Type CALL
Option Strategy SELL
Strike 51.50
Expiration November 2016

ADAPTIVE FUTURES STRATEGY

Trading Symbol CL X6
Strategy LONG
Entry Point 47.72
Target 41.50
Stop Loss 43.10
Contract Expiry November 2016

SYMMETRICAL TRIANGLE BREAKOUTS: CL SEPTEMBER 2016

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 51.50 is calculated by identifying the high of the pattern back in June 2016. Another idea is to take full or partial profit at the next major resistance level set at 49.95.

POTENTIAL DOWNSIDE PER CONTRACT

Once the position is open, if prices fall below 43.10 the futures position should be closed as the strategy failed to materialize.

Symmetrical Triangle breakouts happening in the markets now

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