A symmetrical triangle pattern, also referred to as a wedge, is a consolidation phase before the asset price either breaks out to the upside or downside.
A breakout above the upper trend line of the wedge should herald a new bullish trend, while a breakdown below the lower line of the triangle points to the beginning of a new bearish trend.
Converging trend lines
The wedge shape is formed by two converging trendlines, indicating a narrowing of the peaks and troughs on a chart. In contrast to ascending or descending triangle formations, the upper and lower trendlines of the symmetrical triangle pattern are both pointing towards a central point.
As the symmetrical triangle is a consolidation period, we should observe declining trading volumes as the pattern progresses. Once the price breaks through one of the trendlines, there is scope for a sharp price move.
To give us some conviction that it is indeed a valid breakout, we should want the price action to be accompanied by higher trading volume.
A wedge shape can be pointing downwards, upwards or just horizontally. When a wedge is pointing downwards or upwards, the breakout tends to come in the opposite direction to where the wedge is pointed.
So, in the case of a falling wedge, a breakout to the upside on higher trading volume represents a buying opportunity as a new bullish trend gets underway. We could place a long trade at a price marginally above the upper trendline at the pointed end of the wedge.