Trading Symmetrical Triangles

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 2.82 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 2.7 and selling a call with a Strike at 2.85.

BULL CALL SPREAD: Leg 1

Trading Symbol HX N7
Option Type CALL
Option Strategy LONG
Strike 2.70

BULL CALL SPREAD: Leg 2

Trading Symbol HX N7
Option Type CALL
Option Strategy SHORT
Strike 2.85

ADAPTIVE FUTURES STRATEGY

Trading Symbol HG N7
Strategy LONG
Entry Point 2.642
Target 2.820
Stop Loss 2.540
Contract Expiry Jul 2017

TRADING SYMMETRICAL TRIANGLES: HG N7 ON JUN 2017

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target price is set at 2.82 (the high of February 2017).

POTENTIAL DOWNSIDE PER CONTRACT

Once the position is open, if prices fall below 2.54 the futures position should be closed as the strategy failed to materialize.

Symmetrical Triangles Happening Now

Soybeans: ZS

Japanese Yen: 6J


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