Shabbir Kayyumi
What is Symmetrical Triangle?
The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows.
These types of triangles can give breakout in both direction depending on their existing trend where price action grows increasingly narrow, may be followed by a breakout to either side, up or down. Symmetric triangles are created when both trend lines are converging towards each other. They indicate a period of congestion, represented by falling resistance trend line or rising support trend line with a horizontal support or resistance lines.
Symmetrical triangles can form within a small time frame or even a larger time frame; therefore make sure that if you trade symmetrical triangles, to check on the larger time frame symmetrical triangles that may have formed.
Symmetrical triangle break outs can find more validity when accompanied by supporting candlestick price action patterns. The more price approaches the apex (where the trend lines converge), the bigger the chance of a break-out. The triangle pattern has completed when price breaks out of it, in either direction. Conservative traders may look for additional confirmation, of price action or indicators.
Why to Buy State Bank of India (SBIN)?
Once we notice symmetrical triangle breakout in the stock, one can wait for closing above break out point or closing below break down point for 1-2 days, to enter in strong trend, and stay away from fake breakout. Eventually, price breaks through the upside resistance and continues in an uptrend. Buyers can then reasonably place stop-loss orders below the low of the lower trend line.
Buy Signal
If you look closely at the below attached chart, you can see a Symmetrical Triangle pattern in formation and recently stock has given a breakout from upper trend line for higher levels. The entire formation looks has formed after SBI made a bottom near Rs 150 mark and trading higher indicating uptrend is in continuation. At the same time this stock is trading above 20 DMA and 50 DMA which is supportive to price action. We suggest buying in this stock, considering bullish technical parameters discussed above.
Profit Booking
As per one of the method of Symmetrical Triangle one can use previous swing line for profit booking or distance between point 1 and 2 of the triangle pattern can be added to the breakout point. These levels are standing around Rs 215 and should provide immediate resistance on higher side, moving further Rs 220 will attract more profit bookings. So one can consider profit booking near Rs 215 and higher side towards Rs 220 mark.
Stop Loss
Entire bullish view negates on a breach of immediate support trend line and in a case of SBI, we will consider Rs 189 as a stop loss level closing basis.
Conclusion
We recommend buying State Bank of India around Rs 197 with a stop loss of Rs 189 for higher targets of Rs 215/220 as indicated in above chart.
The author is Head - Technical Research at Narnolia Financial Advisors Ltd.
Disclosure: Narnolia Financial Advisors/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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