Wednesday, April 05, 2017

TRADING WITH RSI

This article was written in 2007. 

While the use of Relative Strength Index (RSI) to get technical buy and sell signals in a range-bound market is well understood, the use of this indicator in a trending market is more intricate. This article covers the use of RSI over the three types of market conditions namely uptrend, downtrend and range-bound or sideway market. We will explore the concept of support and resistance levels which can be used to enhance the accuracy of the RSI signals.


RSI developed by J. Welles Wilder, is a powerful indicator used to measure the velocity of the price movements. Unlike other momentum indicators such as Stochastic that have wide variations even with little overall price movements, RSI is immune to such drawback due to the way its value is calculated. In brief, RSI values are affected by the number of days that the price closes up and the number of days that the price closes down over a certain time period “t”. Commonly used periods for t are 14 and 21 days. In this article, we will use t = 14, the period originally proposed by Wilder.
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RSI In A Sideway Market

Technical signals are obtained by setting two levels, typically a high level at 70 and a low level at 30 where RSI above the 70 level is considered overbought condition while RSI below 30 is considered oversold condition. An example of the application of RSI is shown in Figure 1. We observe that during the August 2006 to December 2006 period, SembMar was trading within the range of $3.20 to $3.58. In such a sideway market that is showing no bias of significant upward or downward price movement, RSI works quite well in identifying the tops (RSI in overbought region) and bottoms (RSI in oversold region) of the price movement. 


Figure 1: Example of using RSI in a sideway market

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RSI In Trending Market

In cases where the price of the stock is trending upward or downward, the overbought and oversold levels have to be changed. This is because RSI being an oscillator that oscillates between 0 and 100 will stay high in an up-trending market as there are consistently more days where prices go up as compared to days when prices go down. Conversely in a down-trending market, we expect RSI to stay at low values. Using the same values of 70 for overbought level and 30 for oversold level will mostly result in wrong signals such as entering and exiting too early or no signal. Such a scenario is illustrated in Figure 2 where RSI did not even drop below the 30-level as Capitaland trended strongly from $2.80 all the way to $5.00. In this case, using the 30-level did not generate any entry signal for a long position. Moreover keeping the 70-level causes Capitaland to be in overbought condition for long periods of time.

Moving upward both the overbought and oversold levels to 80 and 40 respectively as illustrated in Figure 3 now provides clearer trading opportunities. In such up-trending stocks, notice that the oversold signals actually provide opportunities to enter for a long position during the short-term downtrend (retracement) in the longer uptrend price movement.

On the other hand, for RSI trading opportunities for down-trending stocks, the overbought and oversold levels have to be shifted downward to 60 and 20 respectively.


The examples of setting different overbought and oversold levels for different market conditions highlight the importance for technical analysis practitioners to adapt their use of technical indicators and indicator settings for different market conditions.

Figure 2: Example of oversold level at 30 for a stock in an uptrend



Figure 3: Example of oversold level at 40 for a stock in an uptrend


To trade solely based on RSI is not sufficient. Other concepts of technical analysis such candlestick formations, trendlines and other western indicators must be added to the trading strategy to serve as confirmation of the signals and to increase the accuracy of the trading signals. Next, we will employ the concept of support and resistance to confirm the entry and exit signals generated by RSI.

Support & Resistance

Support and resistance are very important concepts in technical analysis. While it is easy to understand, its application is usually not so straight-forward owing to the many support and resistance lines that can be drawn on any given chart. On the price chart, we will emphasize on lines that have more contact points with the price structure. Another important point to note is that a resistance line which was providing resistance to price movement will provide support if this level is broken. Conversely a support line will become a resistance line once it is broken. This is illustrated in Figure 4.

Figure 4: Example of support and resistance levels

Application Of RSI With Support And Resistance

To increase the effectiveness of the technical signals, we will buy near support level while RSI is in oversold condition. Take note that the trend must first be determined in order to select the appropriate values for the overbought and oversold levels. Figure 5 illustrates the application of this simple strategy on SGX. As SGX is in an uptrend, the overbought and oversold levels are set to 80 and 40 respectively. Two excellent bullish technical signals were generated in July and December 2006 when RSI was in oversold region while the price was near the support levels.

In fact, the above scenarios can be easily captured using an automated system, saving you significant amount of time and hunting down stocks which present excellent trading opportunities. One such software is ChartNexus XPertTrader (see Figure 6) which can be used to automatically screen the market for stocks that have RSI, MACD, Stochastic bullish and bearish signals. More details can be found at http://www.chartnexus.com

Figure: Example of the application of RSI and support level to identify bullish signals

While the sections above introduce you to a simple strategy of using RSI signals coupled with the support and resistance concept, it is important that you still adopt proper money management, stock selection and rotational plays techniques in addition to the timing analysis showcased in this article.



 Figure 6: ChartNexus XPertTrader screens the whole market for technical signals

This article first appeared in Smart Investor in 2007. 
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Thursday, March 23, 2017

Major Reversal Pattern - Double Top

This article was written in 2007. 

At every start of a major decline, it was observed that certain price patterns will occur on the chart.  They are historically proven to at least influence the immediate trend if not the mid to long term trend.  While most of the investors will be caught off guard as the downtrend persists, traders who are able to identify reversal patterns will be in a better position to avoid massive losses.  This article will discuss one of the major top reversal pattern known as the double top pattern.

As the name suggests, in-order to reverse a trend, there should be a significant uptrend prior to this reversal pattern.  The price will move to a new high and pulls back to form a trough before another peak fails near the old high of the first peak.  Many traders and investors may jump to a premature conclusion that a double top pattern has been formed.  However, a double top pattern is only considered formed after the the price has broken the support at the low of the trough between the two peaks.  There are many variations of this pattern and thus a savvy trader or investor has to be flexible in applying the techniques to identifying the pattern.  As the wise saying goes, “History likes to repeat itself, but it can repeat in many forms”
After the brief introduction to the price movement of the double top pattern, we shall now explore the technical specifics of this pattern.  There are guidelines to identify the best double top pattern. They are, prior trend, price peaks, volume, duration and support turns resistance. 
#1 Prior trend: There must be a significant uptrend prior to the double top pattern.
#2 Price peaks: The second peak will not be resisted at the first peak exactly. As a rule of thumb, the difference between the second peak and the first should be within 4%, either more or less. We should not restrict the second peak to be lower than the first peak.
#3 Volume: The average volume traded at the second peak should be lower than the first peak.  This signifies that when the market retest the old high, there is an obvious lack of participation as shown by the lower average volume.  Without strong participation, the rally in price will not sustain.

#4 Duration: The best pattern will take anything from 1 month to 3 months to form.  However, as mentioned, we should expect variations of the double top pattern and hence some may take a longer duration to form. Most importantly the essence of the formation must be present.




Figure 1: Example of a double top pattern found in STI chart.



Let us look at Figure 1 which shows a double top pattern found in STI chart.  We had a significant uptrend from the low in August which ends with the first peak formed in October.  A trough then forms in late October which leads to a price rally that took us to the second peak in early November.  However, a quick check on the average volume shows that the second peak has a lower average volume as compared to the first peak.  Once the price broke the low of the trough, the double top pattern is confirmed.  Figure 1 also shows that the formation took about one month to complete.
We can also derive price target base on the double top pattern.  This will give the trader or investor an idea of where the price is likely to head to.




Figure 2: Example of projecting a price target

As seen in Figure 2, to project the price target of a double top pattern, firstly we measure the height of the peak to the low of the trough.  Lastly, we project the height downwards from the low of the trough and derive the price target.  With the price target derived, we will know the potential decline of the price.


Figure 3: Example of support turns resistance

When the double top pattern is confirmed and price had broken the low of the trough, investors can look forward to a retest of the low of the trough as a resistance.  As seen in Figure 3, the low of the trough in May 2000 was a support before the second peak was formed.  Once broken, that support has been retested as a resistance in May 2001.  This retest if fails, offers an opportunity for investors to break jail before another leg down.

This article had discussed how to identify a double top pattern which is one of the major reversal patterns by paying attention to prior trend, price peaks, volume and duration.  We also learn how to derive price target from the pattern and look out for a retest of the low of the trough from a support as a resistance.


This article first appeared in Smart Investor in 2007. 
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Thursday, March 02, 2017

Japanese Candlestick - Hammer

This article was written in 2007. 

There are many types of price charts available today and one of my favorite is the Japanese Candlestick chart.  They are very similar to bar charts except for the many reversal or continuation patterns which we can visually interpret from a group of successive candles found on the chart.  These patterns reflect the change in psychology of the traders and are useful to identify turning points on the chart.

A candlestick is made of the candle body which denotes the opening and closing price and the shadows which denote the intra-period high and the intra-period low where the period can be one hour, 1 day, one week or one month.  The color of the candlestick body tells us if the bulls or the bears won the day.  Whenever a candlestick has a white body, it means that the bulls were stronger than the bears and managed to close the price higher than the opening price.  On the other hand, a candlestick with a black body means that the bears were stronger than the bulls and managed to close the price below the opening price.  Hence, just by looking at the color of the candlestick body, we are able to deduce which side of the market has won the day.  As for the shadows (intra-period high or low), they give us a measure of how much territory the bulls and bears are willing to give to the other.  In the case of long shadows, this also often reflects that there is a sudden and abrupt change of power between the bulls and the bears.  For example, if Stock A open at $1.00 and during the trading day it went up to $1.30.  With such a surge in price, the bulls are firmly in control as many would have expected.  However, if by the closing bell, the stock price falls from the intra-day high of $1.30 to close at $1.00, this will leave a long upper shadow which starts at the candle body and ends at the intra-day high (assuming we are looking at a period of a day to draw the candlestick).  For the price to fall from its intra-day high of $1.30 to $1.00, massive selling is required.  This long upper shadow thus showed an abrupt and sudden change of powers from the bulls to the bears.  The opposite is true for the lower shadow.  In this case, the change of power is from the bears to the bulls and we get a long lower shadow.

A Hammer is formed if the lower shadow is longer by more than 2 times the candle body.  The upper shadow should be very minimal (smaller or equal to candle body) or even non existent.  It has a small candle body which is very close to the upper shadow.  Figure 1 shows an example of a Hammer pattern.


Figure 1: Example of a Hammer.

In order to use a Hammer pattern effectively, we have to identify the preceding trend before the pattern is formed.  This is because while the pattern formed after a downtrend is known as a Hammer, the same pattern can be formed after an uptrend and is known as a Hanging Man.  The interpretation is different.  When a Hammer pattern is formed, we observe that the bulls are strong and managed to beat the bears by closing the price way above the low of the day. However, when a Hanging Man is formed, we interpret the pattern differently.  We observe the long lower shadow as evidence that the bears are flexing their strength in the uptrend but the bulls still manage to stay in control and close the price way above the low during that day.  When we trade a Hammer or Hanging Man, we want to see a white confirmation candle and a black confirmation candle respectively. 

Figure 2: Hammer with white candle confirmation

As seen in Figure 2, there was a preceding downtrend before we observed that a Hammer was formed which is then followed by a white candle confirmation.  
Figure 3: Hanging Man with black confirmation


In Figure 3, the price was moving in an uptrend before being interrupted by a Hanging Man pattern.  A black confirmation candle then formed and the price began to retrace.
After learning how to interpret Hammer and Hanging Man patterns, we are going to explore another way of using this Hammer pattern to our advantage with or without the white candle confirmation.  Since Hammer and Hanging Man reflects a strong change in power between the bulls and the bears, it will be very effective if we can spot them near support or resistance levels.  These can be determined either by trend lines, Fibonacci, moving average and so on.  Alternatively, we can use an oscillator like RSI or Stochastic together with the pattern too.


Figure 4: Example of Hammer resting on support



In Figure 4, we show how to interpret a Hammer pattern together with both the 50 day moving average and the Stochastic indicator. Firstly, the price had been trading lower since early April'07 and a Hammer pattern was formed (denoted by the small arrow).  It was then observed that the end of the lower shadow sits on the 50-day moving average.  As moving average can be used as support or resistance, in this case, we say that the price is supported by 50-day moving average.  Lastly, Stochastic indicated oversold level has reached.  When the stochastic is in oversold, there is a possibility of the price moving up.  Hence with the Hammer pattern indicating a strong change in power from the bears to the bulls and with the moving average supporting the price and Stochastic indicating oversold, the probability of the price turning higher is very high.

In this article we have learnt how to interpret candlestick patterns namely Hammer and Hanging Man. Also, we have discussed how we can combine this analysis with indicators to give us an upper hand in trading.  
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This article first appeared in Smart Investor in 2007. 
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Thursday, February 09, 2017

Swing trading with candlestick charts

This article was written in 2009. 

The Japanese Candlestick chart is currently the most popular price chart. It is interesting to know that the Japanese Candlestick chart had been used in Japan since the 18th century. It was developed by a Japanese rice trader named Munehisa Homma. Munehisa Homma, considered one of the most successful traders in history, claimed that the psychological aspect of the market was extremely critical to trading success. The emotions of traders were reflected in the prices and showed in the candles.
A candlestick consists of the candle body and the shadow; the body denotes the opening and closing price whereas the shadow denotes the intra-period high and intra-period low. The period can range from one hour, one day, one week to even one month depending on the time period. The color of the body depends if the bulls or bears have won the period. If the bull has won and the closing price is higher than the opening price, then the body is white in color. If the bear has won, which means that the closing price is lower than the opening price, then the body is black in color. Therefore, with just a glance, a person can easily see if the bull or bear has won within a period.

A candle pattern can be a single candlestick or multiple candlestick lines. Most candle patterns are inversely related. For each bullish pattern, there is a similar bearish pattern. The primary difference is their position relative to the prior trend of the market.

In this article, we will study two single candlestick reversal patterns: The Hammer and the Hangman.

The Hammer


Hammers are found at the bottom of a downtrend. For the past few days, the bear was very strong and was victorious in the battle, thus, a number of black candles appeared and the price trended down. One fine day, when the bear was expected to win the day again, the bull appeared out of nowhere and ambushed the bear! This shows that the market has a very bullish feel about it, hence chances of stock price changing to a short term uptrend is higher.






 









Figure 1: Hammer candle

There are several criteria that must be met:

       -          Hammers are usually seen at the bottom of the trend
       -          The shadow must be at least twice the size of the body
       -          Can exist in both white or black
       -          Very little or no upper shadow

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Figure 2: Hammer with white candle confirmation

As seen in Figure 2, there was a preceding downtrend before we observed that a Hammer had formed, which was then followed by a white confirmation candle.





Figure 3: Double Hammer with white candle confirmation


Figure 3 is another example of a Hammer. Instead of having a single Hammer, another Hammer appeared the next day, which signaled that the bull was fighting very hard to win the battle, thus signifying a bullish trend.

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The Hanging man


As the name implies, the Hanging man has a bearish connotation. The story is very similar to the hammer but with opposite roles. This time, the bear ambushed the bull and the market has a bearish feel to it.




Figure 4:  Hanging man candles

There are several criteria that must be met:
-          Hanging men are usually seen at the top of the trend
-          The shadow must be at least twice the size of the body
-          Can exist in both white or black candle
-          Very little or no upper shadow



 Figure 5: Hanging man candles foretell a bearish feeling



Figure 6: The Hanging man foretells a major retracement



Both Hammer and Hanging man candles look the same but appear in different trends. Look for the Hammer when stocks have been coming down and look for the Hanging man when the stock has been continuously going up. When the Hammer or Hanging man appears, it signifies a possible strong trend reversal.

The examples above are screened using ChartNexus software with XPertTrader (www.chartnexus.com). The Hammer and Hangman are two of the patterns that are taught in the ChartNexus Candlesticks Analysis (CCA) course. Apart from learning about various types of candlesticks patterns, ChartNexus trainers also educate participants on how to combine candlesticks analysis with various indicators to achieve the all-important upper hand in trading.

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This article first appeared in Smart Investor in 2009. 
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Thursday, February 02, 2017

Bollinger Band - Trading on Volatility

This article was written in 2007.

With emerging markets like the Chinese and Indian economies growing at a fast pace and recording high percentage growth year over year, the bullishness has spilled over to the global stock markets with all major indices hitting new highs at the end of 2006. However, it is unlikely that the world indices will continue to scale up without any corrections. A classic example of a worldwide market correction occurred when the Chinese stock market recorded a near 9% drop in a single-day in Feb 2007. This together with the Yen Carry Trade triggered a chain reaction of global stock markets melt-down.  Since then, global markets had a fast recovery with the likes of the STI index touching the 3500 points and the Dow Jones breaking the 13000 points barrier in April 2007. The example of global markets melt-down and fast recovery demonstrate how volatile the stock market can be. The willingness to take a higher risk is heavily linked to the fact that people are better educated and information is easily available with the help of the internet.  Moreover, the one factor in the stock market that has not changed since its establishment is market psychology. The human psychologies of fear, greed and hope remain the main culprits of the high volatility in the stock market. 

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The Bollinger Band, developed by John Bollinger, is widely used by traders to trade the market effectively. The Bollinger Band is constructed using 3 lines; the upper Bollinger band, the Simple Moving Average line (SMA) and the lower Bollinger band. The upper and lower Bollinger bands are usually placed at a distance of 2 standard deviations above and below the SMA respectively. Standard deviation is a mathematical term in which the value is proportional to the volatility of the price movement. SMA line is the averaging of the close price over a certain number of days.  Hence, when the stock is trading sideway or the price volatility is low, the upper and lower bands will converge toward the SMA line. On the other hand, the upper and lower bands will begin to widen and move away from the SMA line when there is substantial fluctuation in the stock price. This article will look in the different ways that Bollinger Bands are used. 

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The first application of Bollinger Band is its use in providing an indication of support and resistance level. As we expect prices to move in between the upper and lower bands, the upper band acts as a resistance level to more upsides while the lower band acts as a support level to more downsides.  The following shows how the upper and lower bands provide support and resistance to the price movement.


Figure 1: Use of Bollinger Band as Support and Resistance

During the month of January 2007 to April 2007, FerroChina’s stock price was well-resisted by the upper band, refusing to break new grounds. On the other hand, during the price retracements in early March 2007 and late April 2007, FerroChina was able to find good support level at the lower band that prevented the price from diving further.  


The second application of Bollinger Band is in the powerful Bollinger Squeeze which trigger high probability buy and sell signals. The Bollinger Squeeze occurs when a stock protracted to a period of low volatility has the upper and lower bands appearing to be squeezed together. A buy or sell signal is generated when there is a Bollinger breakout from this squeeze of the lower and upper bands. Figure 2 shows the occurrence of the Bollinger Squeeze and the subsequent Bollinger breakout when the upper and lower bands begin to expand suddenly.


Figure 2: Bollinger Squeeze and Subsequent Bullish Breakout

During the period of January 2007 to March 2007, the big gap between the upper and lower bands shows that Hyflux was trading with high volatility. However in Apr 2007, Hyflux started trading sideways and as a result, the upper and lower bands contracted and squeezed together, indicating the occurrence of the Bollinger Squeeze. A Bollinger breakout then happened when both bands suddenly diverged with the price hugging the upper band thereby triggering a bullish signal. The reverse is true for a breakout to the downside. This is illustrated in Figure 3 where a Bollinger Squeeze was formed in April 2007 with the subsequent bearish breakout happening on 23rd of April 2007.


Figure 3: Bollinger Squeeze and Subsequent Bearish Breakout

We can further enhance the Bollinger breakout after the Bollinger Squeeze with another indicator thus increasing the probability of making a trade in the right direction of breakout. One popular indicator that can be used together with the Bollinger Squeeze is the Relative Strength Index (RSI) which was developed by J. Welles Wilder. The RSI is a powerful indicator used to measure the velocity of the price movements and the values are calculated based on the number of days that the price closes up and the number of days that the price closes down over a certain period of time. In this article, the period of time used is 14 days which is originally proposed by Wilder. Let us re-visit the earlier chart (Figure 2) which featured Hyflux where a buy signal was generated by Bollinger Squeeze on the 25th Apr 2007. An analysis of the RSI indicator shows that the RSI was well supported during the Bollinger Squeeze and was trending upwards as the price approaches Bollinger breakout. This signifies that the price action remain firm throughout the Bollinger Squeeze and it grew in strength as breakout came beckoning. Figure 4 shows the chart of Hyflux using RSI indicator in conjunction with Bollinger Band.


Figure 4: Usage of Bollinger Squeeze with the RSI indicator

The above scenario of combining RSI and Bollinger Band in our analysis can be easily captured by using an automated software program which could save a significant amount of time from looking for these opportunities. One such software is ChartNexus XPertTrader (www.chartnexus.com) that can be used to automatically screen the whole market for stocks that have Bollinger Squeeze together with the RSI trending higher. 


This article has highlighted the importance of understanding the volatility of the stock market in order to make profitable trades. A powerful indicator such as Bollinger Band is widely used to identify buy and sell signals based on two applications. The first involves using the bands as support and resistance with the second involving looking for a Bollinger Squeeze followed by a Bollinger breakout.. Combining Bollinger band with the RSI indicator also increases significantly the probability of the signal being valid.

This article first appeared in Smart Investor in 2007. 
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.

Wednesday, January 18, 2017

Continuation Patterns

This article was written in 2007. 


In the last issue we shared how to trade short term price patterns. In this article we will share another form of price patterns known as the triangles or continuation patterns where price is expected to breakout after consolidations. They are also well known as intermediate or near term patterns.  Although they are essentially continuation patterns, but sometimes they act as reversal pattern as well. Let's begin our discussion with a introduction to ascending triangle.

The ascending triangle will have a flat resistance and a series of higher lows.  While the price met with resistance at one particular price, it must be observed that buyers are very keen and that the dips from the resistance is higher one after another.  Breakout happens when the resistance finally gives way.  Ascending triangle breakout is biased to the upside and one should note where the breakout occurs.  The best breakout of triangles happens away from the apex of the triangle.

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Figure 1: ascending triangle example


As shown in Figure 1, the price chart of Boustead shows a resistance at $2.03 thereabouts.  For 3 months from Apr'07 to Jun'07, it is unable to breakout from this resistance.  However, it must be noted that the price retracement from the resistance achieved the higher low characteristic.  This is a very bullish sign as it meant that investors are very keen to buy and the buying pressure is strong as the price is unable to trade lower. On late June'07, the price broke out of the resistance and went on to new high.  Do note that it is away from the apex of the triangle.

Second in line is descending triangle. As the name suggest this price pattern is biased to the downside. Instead of a flat resistance as in the case of an ascending triangle, for a descending triangle we will be looking out for a flat support. The price will have seem to have found support at a particular price and that gives investors an impression that the price seems to be holding at this level very well. Not obvious to the untrained eyes, every price rally is actually getting lower. Then a breakout to the downside will catch investors unaware.  

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Figure 2: descending triangle example



As shown in figure 2, the price chart of Unionmet shows a flat support at $0.51  thereabouts.  For nearly 3 months, the support gave a false sense of security to investors because while the support is holding well, every price rally is getting lower and lower.  It is suggesting strong overhead selling at every rebound.  Investors should be cautious of such characteristic.  This is a very bearish sign as it meant that investors are very keen to sell and the selling pressure is strong as the price is unable to trade higher.  In middle of Jul'07, the price broke out of the support and went on to new low.  Do note that it is away from the apex of the triangle.

Last but not least, symmetrical triangle.  This price pattern can breakout either to the upside or downside.  Price will trade lower high as well as higher low, converging towards the apex of the triangle.  It's like the buyers and sellers are very balanced in power and the price was traded in a converging manner until a breakout to either side happens.

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Figure 3: symmetrical triangle example


As shown in figure 3, the price chart of HiapHoe shows converging lower highs and higher lows.  While the ascending and descending triangle pattern dictate the market tone, where it is bullish and bearish respectively, symmetrical triangle dictates a balance between buyers and sellers.  Hence it is only after a break to either side then only can we conclude whether it is trending higher or lower.  From early Nov'07 to late Dec'07, we can see that every price rally is lower than the previous attempt and every price retracement ends up higher than the previous.  A breakout to the upside then occurs in late Dec'07. 

There are other essential factors to consider when we are trading triangle patterns. The best triangle is formed between one month to not more than three months. The volume should be drying up as the price trades towards the apex of the triangle.  Upon breakout of the triangle pattern, volume should be significantly higher. It will be even more bullish if the price gaps up in the breakout.

In this article we have discussed the 3 types of price patterns known as the triangles.  Breakout of triangles should not be too close to the apex and that it should be accompanied with heavy volume.  The time taken for the triangle pattern to form should be between one month to 3 months typically.




This article first appeared in Smart Investor in 2007. 
DISCLAIMER: The contents in this website are for fun reading and must not be taken as a buy or sell advice. You must do your own analysis on top of my postings. By reading this blog, you agreed that i am not responsible for your trading.