Friday, March 11, 2011

Triangle breakouts

Triangle consolidations can be easy to identify such as the obvious one from b4 to b22 but their breakouts are tricky to predict. Although they could go either way, the relative strengths of bars will usually give an indication of which way they will break. The strong trend bars making the up moves while taily bars making the down moves such as today usually imply and upward break.

Triangle breakouts lead to very strong trends, and you should always take them, especially if you get a breakout pullback signal such as b25.

The biggest risk trading triangles is they often turn into expanding triangles. That is to say after the breakout at b26, it could have easily broken below b9 and then back up again. This is why you always need to take some profit on a strong breakout out of the triangle. If the pullback is not strong enough to turn into an expanding triangle, it often gives a 2 legged pullback such as the A2 at b46. This is usually an excellent trade if its deep since the ones who missed the breakout will enter with you.

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