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Triangle Trading

por ppferreira » 9/11/2002 3:04

TRIANGLE TRADING

Classic triangle patterns don't fit easily into simple continuation or reversal trading strategies. Depending on their unique characteristics and position within the larger trend, they may foretell either event. While certain variations lean toward a favored breakout, the artistic symmetrical triangle has zero bias to either outcome as the formation suggests a state of perfect balance. Sharp traders closely watch the tug and pull within the developing pattern to identify the eventual winning play.
Trading power within well-formed triangles intensifies as they shift from range into breakout mode. When price finally surges into directional trend, a powerful vertical thrust quickly develops. While false moves occur at these apex points, triangles have a higher degree of reliability than most breakouts.

The angle of inclination defines this pattern's identity. Ascending triangles rise again and again toward a ceiling resistance level. Symmetrical triangles surge rhythmically across both sides of a horizontal axis dividing the formation right through the middle. The bearish descending triangle bounces weakly off bottom support.

High volatility marks the birth of new triangles. But as they approach their termination points, activity decreases sharply. This highlights a major risk in successfully trading these patterns. Should no ignition spark the expected breakout, the chart may flat-line, with price meandering endlessly in sideways motion. Traders caught in this phenomenon are advised to close positions and move to more fruitful endeavors.



Ascending Triangles
Buying pressure builds as price bounces repeatedly off a ceiling of horizontal resistance. A sharp thrust through this zone signals the breakout. Watch for any failure at the 3rd high, triggering a possible triple top reversal.


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Symmetrical Triangles
Noted for their central pivot axis, these patterns can yield powerful moves. Take no initial bias and examine buying at the 2nd and 3rd bottoms. The ability to hold well above the 1st low on good accumulation stokes the breakout fires.


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Descending Triangles
Rally power fades as the bull's energy is spent. An illusory double bottom invites one last batch of weak hands just before a sharp break signals major selling. If the bears fail, buy the 1st move above the trendline of the declining tops.


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Bom fim de semana a todos,
Kid_A
"Don´t take tips before tips take you"
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Breakout Trading

por ppferreira » 9/11/2002 2:54

BREAKOUT TRADING


Significant declines evolve into long bottoms characterized by failed rallies and retesting of prior lows. As new accumulation slowly shakes out the last crowd of losers, a stock's character changes. Prices push toward the top of key resistance. Short-term relative strength improves and charts print a series of bullish price bars with closing ticks near their highs. Finally the issue begins a steady march through the wall marked by previous failures.
Stocks must overcome gravity to enter new uptrends. Value players build bases but can't supply the critical force needed to fuel rallies. Fortunately, the momentum crowd will arrive just in time to fill this chore. As a stock slowly rises above resistance, greed rings a loud bell and these growth players jump in all at the same time.

The appearance of a sharp breakout gap has tremendous buy power. But the skilled trader should remain cautious unless the move is accompanied by heavy volume. Bursts of enthusiastic buying should draw wide attention, which ignites further price expansion. When volume fails to show, the gap may quickly fill and trap the emotional longs.

Non-gapping, high volume surges provide a comfortable price floor similar to gaps. But support may be more difficult to measure. And momentum can take longer to develop, forcing a stock to swing into a new range rather than rise quickly. Fortunately this scenario also sets up pullback trades as support forces profitable bounces.

The uptrend terrain faces predictable obstacles marked by Clear Air pockets and congestion from prior downtrends. These barriers force frequent dips that mark good buying opportunities. The trader must identify these profitable zones in advance but also recognize that dips will disappear during the strongest rallies. Here price blasts through prior resistance as enthusiasm explodes.

During uptrends, one goal is to locate runaway expansion moves. As trend builds momentum, both gapping and non-gapping surges will register on technical indicators, such as MACD or ADX. Short pullbacks should not violate the math of this developing strength. As volatility absorbs each surge, more powerful rallies should erupt. During these events, price range and volume will expand bar to bar, often culminating in a second (continuation) gap and a final exhaustion spike.


Break and Run


Gap breakouts are more likely to rise toward higher prices immediately than simple volume breakouts. Waiting for a dip may be futile. Extreme crowd enthusiasm ignites continued buying at higher levels and market makers don't need pullbacks to generate volume. If entry is desired, use a trend-following strategy and manage risk with absolute price or percentage loss stops.



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