Getting Technical: 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 2.60 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).

BULL CALL SPREAD: Leg 1

Trading Symbol HX Z6
Option Type CALL
Option Strategy LONG
Strike 2.250
Expiration DEC 2016

BULL CALL SPREAD: Leg 2

Trading Symbol HX Z6
Option Type CALL
Option Strategy SELL
Strike 2.600
Expiration DEC 2016

ADAPTIVE FUTURES STRATEGY

Trading Symbol HG Z6
Strategy LONG
Entry Point 2.2330
Target 2.6000
Stop Loss 2.0800
Contract Expiry DEC 2016

SYMMETRICAL TRIANGLES: HG Z6 OCT 16

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

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.

POTENTIAL DOWNSIDE PER CONTRACT

Once the position is open, if prices fall below 2.08 the futures position should be closed as the strategy failed to materialize.

Symmetrical Triangles Happening Now

Natural Gas: NG

10-Yr Note: ZN


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