How Prices Break Out of a Symmetrical Triangle

Prices may move out of a Symmetrical Triangle either up or down. There is
seldom, if ever, as we have said above, any clue as to direction until the
move has actually started, i.e., until prices have broken out of their triangular
“area of doubt” in decisive fashion. In a very general way, the precepts we
have laid down for breakouts from Head-and-Shoulders Formations apply
here as well. For example, the margin by which prices should close beyond
the pattern lines is the same, roughly 3%. It is equally essential that an upside
break in prices be confirmed by a marked increase in trading volume; lacking
volume, do not trust the price achievement. But a downside breakout, again
as in the case of the Head-and-Shoulders, does not require confirmation by
a pickup in activity. As a matter of record, volume does visibly increase in after prices have fallen below the level of the last preceding Minor Bottom
within the Triangle, which, as you can see, may be several points lower than
the boundary line at the place (date) of the actual breakout.
The curious fact is that a downside breakout from a Symmetrical Triangle
which is attended right from the start by conspicuously heavy volume is
much more apt to be a false signal rather than the start of a genuine downtrend
that will be worth following. This is particularly true if the break occurs
after prices have worked their way well out into the apex of the Triangle; a
high volume crack then frequently — we might even say usually — develops
into a 2- or 3-day “shakeout” which quickly reverses itself and is followed
by a genuine move in the up direction. All of the above the reader will have undoubtedly found most disconcerting.
Here is a very pretty technical pattern and it cannot always be
trusted. Unfortunately, Symmetrical Triangles are subject to false moves to a
far greater extent than the Head-and-Shoulders or any of the other formations
we have discussed or will discuss later. Unfortunately, some of these
false moves cannot be identified as such until after a commitment has been
risked (although good trading tactics should prevent their occasioning much

more than a trivial loss). And, unfortunately again, even a typical shakeout,
such as we described in the preceding paragraph, may produce a double
cross, proceeding right on down in a genuine decline. No technical chart
formation is 100% reliable, and, of all, our present subject is the worst
offender.
But most Symmetrical Triangles — lacking an actual statistical count,
our experience would suggest more than two thirds of them — behave
themselves properly, produce no false signals which cannot be spotted before
any damage is done. Upside breakouts on high volume may be premature
in the sense that prices return to pattern and do some more “work” there
before the genuine uptrend gets under way, but they seldom are false. We
shall have a little more to say about false signals in this chapter and more
later on what we trust will be helpful in developing the experience a trader
needs to defend himself against them.