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Next time someone says “the market is about to breakout – just look at this wedge/flag/triangle!”, you have to think “Of course it will break, where else is it going to go?” The market cannot exactly disappear behind the chart, can it?
Nevertheless, these styles of patterns can be interesting and show the mindset of a market. You could probably call this one a symmetrical triangle, not a wedge so much, but semantics…
It’s not the type of pattern from which you would build a system, because they tend to have a few false breaks here and there.
However, like a lot of old school chart patterns, the more obvious they look, the more people see it so it becomes important – and tradable.
A lot of the time these patterns are accompanied with falling volume. You can see that in the 30-day average of volume below the chart. Then when the market breaks, higher volume is generally a good signal of a strong move. It means those that were on the sidelines are now getting in.
There are many old rules on how to trade triangle breakouts. Refer Murphy for one, Edwards and Magee for another.
But there’s more to the pattern than just waiting for a breakout. A good scalper will play around the levels, pre-empting the break and scratching trades where need be.
Imagine for a minute that price edges towards the upper line. Getting long ahead of the break can be a trade with good Risk:Reward. Think about it:
If it is followed by a big breakout, great!
If it’s just a false break, then you have had time to pull your stop up to a scratch or small stop profit.
If the move fizzles and does not even break the level, then chances are it is still range trading, so your downside is ‘generally’ not significant.
That adds up to good R&R.
How’s this for another strategy? Be long (or short) before the move through resistance (or support) AND have your exits in the queue – at about where the breakout traders will be getting in. Or do that with a half clip. That way you bank something even if the move is a falsey.
The point is there is more than one way to trade one pattern and the pre-emptive scalp can be a good one.
The ‘throwback’ is another. This is like a more aggressive version of the false break. It happens when there is a decent break followed by a retracement back to the previous support/resistance lines. I’ve heard that kind of retracement called “the last chance to get long(short). Just another way to trade it.
Next time someone says “the market is about to breakout – just look at this wedge/flag/triangle!”, you have to think “Of course it will break, where else is it going to go?” The market cannot exactly disappear behind the chart, can it?
Nevertheless, these styles of patterns can be interesting and show the mindset of a market. You could probably call this one a symmetrical triangle, not a wedge so much, but semantics…
It’s not the type of pattern from which you would build a system, because they tend to have a few false breaks here and there.
However, like a lot of old school chart patterns, the more obvious they look, the more people see it so it becomes important – and tradable.
A lot of the time these patterns are accompanied with falling volume. You can see that in the 30-day average of volume below the chart. Then when the market breaks, higher volume is generally a good signal of a strong move. It means those that were on the sidelines are now getting in.
There are many old rules on how to trade triangle breakouts. Refer Murphy for one, Edwards and Magee for another.
But there’s more to the pattern than just waiting for a breakout. A good scalper will play around the levels, pre-empting the break and scratching trades where need be.
Imagine for a minute that price edges towards the upper line. Getting long ahead of the break can be a trade with good Risk:Reward. Think about it:
If it is followed by a big breakout, great!
If it’s just a false break, then you have had time to pull your stop up to a scratch or small stop profit.
If the move fizzles and does not even break the level, then chances are it is still range trading, so your downside is ‘generally’ not significant.
That adds up to good R&R.
How’s this for another strategy? Be long (or short) before the move through resistance (or support) AND have your exits in the queue – at about where the breakout traders will be getting in. Or do that with a half clip. That way you bank something even if the move is a falsey.
The point is there is more than one way to trade one pattern and the pre-emptive scalp can be a good one.
The ‘throwback’ is another. This is like a more aggressive version of the false break. It happens when there is a decent break followed by a retracement back to the previous support/resistance lines. I’ve heard that kind of retracement called “the last chance to get long(short). Just another way to trade it.