Normal
CoyotteHere's an example of what a true ascending triangle should look like, and how it should be traded.Sorry I can't post a chart - I haven't bothered to learn how to - maybe you can instruct me.The stock is ADBADB made a high of $9.72 on 4/11/04......this was the point 1 of the ascending triangle.Next it pulled back and made a low of $9.37 on 15/11/04...this was point 2 of the triangle.Then it went up to a high of $9.74 on 18/11/04...this was point 3 of the triangle. Now we have two equal highs (near enough), i.e. points 1 & 3, on which to draw the upper horizontal boundary or the triangle.Then a pullback to the low of $9.50 on 23/11/04....point 4 of the triangle. Now we have two lows, points 2 & 4, on which to draw the upward sloping lower boundary of the triangle.Extend the upper and lower boundaries of the triangle to the right until they join. It's also a good idea to mark in points 1, 2, 3 & 4.24/11/04 was the breakout day with high of $9.80Go long on the 25th at $9.81(one tick above the breakout day) with a stop just below the bottom boundary of the triangle, directly below the breakout day. In this case the stop would be at about $9.49, which is a risk of 3.3%A couple of points worth noting...1. An uptrend preceded the triangle.....this is VERY important. Triangles are continuation patterns....if a solid uptrend precedes the formation of the triangle, the stock is more likely to continue a solid uptrend once it breaks out above the triangle.2. The two tops that formed the upper boundary of the triangle were not exactly equal, but they were only 2 cents apart - that's close enough for our purposes.3. The breakout day was not accompanied by increased volume. Strictly speaking, it should have been. However, my experience is that increasing volume sometimes doesn't kick in until a few days after the breakout - it seems that traders sometimes take a few days to realise the stock is on the move, then they start piling into it, causing increasing trading volume.So while increased volume on the breakout day is preferable, I don't believe the pattern should be ignored if it doesn't exactly follow the rules in this regard.CheersBunyip
Coyotte
Here's an example of what a true ascending triangle should look like, and how it should be traded.
Sorry I can't post a chart - I haven't bothered to learn how to - maybe you can instruct me.
The stock is ADB
ADB made a high of $9.72 on 4/11/04......this was the point 1 of the ascending triangle.
Next it pulled back and made a low of $9.37 on 15/11/04...this was point 2 of the triangle.
Then it went up to a high of $9.74 on 18/11/04...this was point 3 of the triangle. Now we have two equal highs (near enough), i.e. points 1 & 3, on which to draw the upper horizontal boundary or the triangle.
Then a pullback to the low of $9.50 on 23/11/04....point 4 of the triangle. Now we have two lows, points 2 & 4, on which to draw the upward sloping lower boundary of the triangle.
Extend the upper and lower boundaries of the triangle to the right until they join. It's also a good idea to mark in points 1, 2, 3 & 4.
24/11/04 was the breakout day with high of $9.80
Go long on the 25th at $9.81(one tick above the breakout day) with a stop just below the bottom boundary of the triangle, directly below the breakout day. In this case the stop would be at about $9.49, which is a risk of 3.3%
A couple of points worth noting...
1. An uptrend preceded the triangle.....this is VERY important. Triangles are continuation patterns....if a solid uptrend precedes the formation of the triangle, the stock is more likely to continue a solid uptrend once it breaks out above the triangle.
2. The two tops that formed the upper boundary of the triangle were not exactly equal, but they were only 2 cents apart - that's close enough for our purposes.
3. The breakout day was not accompanied by increased volume. Strictly speaking, it should have been. However, my experience is that increasing volume sometimes doesn't kick in until a few days after the breakout - it seems that traders sometimes take a few days to realise the stock is on the move, then they start piling into it, causing increasing trading volume.
So while increased volume on the breakout day is preferable, I don't believe the pattern should be ignored if it doesn't exactly follow the rules in this regard.
Cheers
Bunyip
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