A symmetrical triangle is a chart pattern that is easily recognized by the shape created by two trendlines. It's identified by drawing two trendlines that connect a consequently lower peaks and a consequently higher troughs. Both act as obstructions stopping the price from becoming higher or lower, but once the price surpasses one of these levels, a sharp movement often follows.
Traders in trading systems such as day trading systems, options trading systems, and futures trading systems recognize the price movement and capitalize on it. The difference from the start of A and B establishes the height of the triangle. Once one of the trendlines is broken, the AB height can be added to price level of the break in order to determine the target on the move.
It's much easier when to show you, so let's take a look at a visual example via the Nikkei 225 Futures:
The chart shows a downtrend converging with an uptrend. That pretty much sums up the makings of a symmetrical triangle. Knowing how to trade the pattern is much more important than spotting the pattern, so let's get review that in depth.
The long oval represents the height of the formation, which is determined by the starting points of the formation. In this case, the start of the uptrend was at 9,800 and the start of the downtrend was at 10,500. Subtract the two to get the height of 700. Before you can establish a target on the trade, you need to see a breakout wither above downtrend resistance or below uptrend support. In this example the breakout took place above downtrend resistance.
The breakout took place at 10,350. To establish the target simply add the height of 700 to the breakout point. This results in a target of 11,050, which is represented by the white rectangle in the chart above.
Related terms: Ascending Triangle, Descending Triangle, Broadening Formation