Bilateral patterns in technical analysis (TA) are chart formations that can signal both continuation and reversal of the current trend, depending on subsequent price action. These patterns reflect market indecision and often resolve when a breakout occurs in either direction. Here are some common bilateral patterns:

1. Symmetrical Triangle:

   • Description: Formed by two converging trendlines that connect a series of lower highs and higher lows. The lines converge towards a point known as the apex.
   • Usage: A breakout above the upper trendline signals a potential bullish move, while a breakout below the lower trendline indicates a bearish move. Volume usually decreases during the formation and spikes upon breakout.

2. Rectangle:

   • Description: Characterized by horizontal support and resistance lines that contain the price action within a range.
   • Usage: A breakout above the resistance line signals a bullish continuation or reversal, while a breakout below the support line indicates a bearish continuation or reversal. The breakout direction determines the trade.

3. Wedge (Rising and Falling):

   • Description: A rising wedge has upward-sloping trendlines, with the support line steeper than the resistance line. A falling wedge has downward-sloping trendlines, with the resistance line steeper than the support line.
   • Usage: A rising wedge typically breaks to the downside, while a falling wedge usually breaks to the upside. However, these breakouts can lead to either continuation or reversal, depending on the preceding trend.

4. Diamond Pattern:

   • Description: Resembles the shape of a diamond or rhombus, formed by two symmetrical triangles—one widening and one narrowing.
   • Usage: The pattern starts with a broadening formation and transitions into a symmetrical triangle. A breakout above the upper trendline signals a bullish move, while a breakout below the lower trendline indicates a bearish move.

5. Pennant:

   • Description: Small symmetrical triangle that forms after a strong price movement, known as the flagpole.
   • Usage: A continuation pattern, but it can break out in either direction. A bullish breakout follows an upward flagpole, while a bearish breakout follows a downward flagpole. Volume typically decreases during the pennant formation and spikes upon breakout.

6. Broadening Formation:

   • Description: Formed by two diverging trendlines, creating a shape that broadens over time.
   • Usage: Breakouts can occur in either direction, leading to either a continuation or a reversal. The pattern signifies increasing volatility and indecision.

Identifying Bilateral Patterns

1. Look for Convergence or Divergence: Identify the trendlines that either converge (triangles, wedges) or diverge (broadening formations).
2. Volume Analysis: Volume typically decreases during the pattern formation and spikes at the breakout.
3. Breakout Confirmation: Wait for a clear breakout in either direction, confirmed by increased volume and price movement.
4. Measure the Potential Move: Measure the height of the pattern and project it in the direction of the breakout to estimate the potential price target.

Example Scenarios

• Symmetrical Triangle in an Uptrend: The price consolidates within the triangle, and a breakout above the upper trendline indicates a continuation of the uptrend.
• Rectangle in a Downtrend: The price fluctuates between horizontal support and resistance levels. A breakout below the support level indicates a continuation of the downtrend.
• Rising Wedge in an Uptrend: The price forms a rising wedge. A breakout below the lower trendline suggests a reversal to the downside.

Conclusion

Bilateral patterns are powerful tools in technical analysis, providing traders with signals for potential market moves. Understanding these patterns and their characteristics can enhance a trader's ability to make informed decisions in both trending and consolidating markets.