Chart patterns are used to predict whether the price of an asset is going to rise or fall. But not all patterns are quite as straightforward as this sounds. Some are not clearly bullish or bearish, nor do they strictly indicate a trend continuation or reversal trend. Such patterns are known as bilateral chart patterns.
Bilateral patterns are tricky to trade, since they’re not as reliable as the other two categories. When trading them, it is essential to take into account the current market trend and other trading tools, to determine the most probable outcome.
If this is the first time you are hearing about chart patterns, you might first want to read our introductory article to chart patterns, to learn the basics about chart patterns, which will help you better understand this article.
BILATERAL CHART PATTERNS ESSENTIALS:
- Bilateral chart patterns are indecisive patterns, as they do not point to a specific direction, thus their outcome is trickier to predict.
- Common bilateral chart patterns are:
- Rectangles
- Triangles: ascending triangle, descending triangle and symmetrical triangle.
The rectangle
The rectangle is formed when the price stagnates for a while in a bullish or bearish market trend. The price consolidation happens between horizontal support and resistance levels, forming a rectangular trading box. At the end of the consolidation phase, after support and resistance levels are tested a few times, the price breaks either upwards or downwards, making rectangles indecisive patterns. Note that, in a bull market, rectangles usually have more of a chance for a bullish breakout, while in a bear market, their outcome is more often bearish.
The triangles
The ascending triangle is formed when consistent higher lows are formed, with a horizontal resistance above. This is the most bullish triangle, as it signals increased buying pressure, and it usually forms in a bull trend. If a bullish breakout happens at the end of an ascending triangle this confirms the pattern.
The descending triangle is the most bearish triangle and it usually forms during a bear trend. It is formed when a chart is reaching ever lower highs, with a horizontal support below the pattern. The pattern shows increased selling pressure at an ever lower price. A bearish sell-off happens at the end of the pattern confirms it.
The symmetrical triangle is the most neutral of all triangles and should, therefore, be traded with extra caution. It is characterized by a descending upper trendline and an ascending lower trendline. Forming lower highs and higher lows, the triangle tightens, and this is followed by a breakout in price to conclude the pattern.
Among all types of chart patterns, the group of bilateral patterns is considered the most uncertain. It is difficult to predict whether the price will rise or fall after a bilateral pattern has been formed, so it is essential that the predicted price move is then confirmed. Taking other types of patterns, as well as fundamental factors into consideration is also advisable to avoid losses and secure gains.