Piker Trader

Here is a new feature for the site, each week there will be an example of a techincal chart pattern.

The triangle pattern is one of my favorite patterns to trade.  It provides a clear entry, a clean exit/target and its easy to spot.  For the pattern to be formed it needs to have a clear base that has formed over a few days and the stock also must be trending down towards the base.

Here is an example of a beautiful Descending Triangle:

The bottom was formed by the two reaction lows in Nov and Dec.  This formed a support level that would eventually form the bottom of the triangle.  The stock then failed to make a new high after bouncing off the support level in Dec the downtrend line was now established.  In the case of this stock, a tighter descending triangle formed. Either triangle was in play.

It is also important to notice volume, it should contract while the price remains in the triangle and volume should increase when the base of the triangle is broken.

The most important thing to notice here is how many times the stock attacked the support level. Here is a key rule in technical analysis "THE MORE A SUPPORT OR RESISTANCE LEVEL IS TESTED THE WEAKER IT BECOMES".

If you were a risky trader you could of shorted after seeing BPOP testing the 2.11 level.  The safe play was to short around 2.10-2.08 and set your stop at 2.12. 

Now that the bottom of the triangle is broken targets can be placed.  When it comes to a descending triangle, or any triangle a target is the size of the triangle.  The size of the triangle is measured from the base to the top of the triangle.  The target is the size of the triangle minus the break of the base.

So in this case, you can chose two targets the larger triangle is 2.63-2.11=.52  so then its 2.11-.52=1.59
Or you can use the smaller triangle and its 2.40-2.11=.29 so then its 2.11-.29=1.82

Here is more information on a Descending Triangle

If you want to learn about chart patterns check out INO.COM's TV, for the price you pay it is amazing the amount of information you get. Each video is informative and comes with a pdf to read along. You would have to spend thousands of dollars in books to get all the information that INO.COM has. CHECK IT OUT!