First I must tell you that I am not a professional Chartist and I only use the chart to help me make decision to buy, hold or sell.
The two methods commonly used to analyze securities and make investment decisions are fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn’t care one bit about the “value” of a company. Chartists are only interested in the price movements in the market.
Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor.
You can use technical analysis to:
1. Identify profitable stock patterns
2. Minimize your risk
3. Maximize your return in up and down markets
You’ll learn how to make big money on stocks using a technical analysis toolkit that has been wielded successfully for hundreds of years. That’s no exaggeration.
That makes these patterns some of the most time-tested strategies in finance. You can feel secure that you are trusting your investments to a highly refined system – not a new craze or an analyst’s hunch.
There are hundreds of patterns in stock charts that traders can look for, but I will only tell what is most trusted and reliable.
The Symmetrical Triangle: A Reliable Workhorse
You’ll recognize the symmetrical triangle pattern when you see a stock’s price vacillating up and down and converging towards a single point. Its back and forth oscillations will become smaller and smaller until the stock reaches a critical price, breaks out of the pattern, and moves drastically up or down.
The symmetrical triangle pattern is formed when investors are unsure of a stock’s value. Once the pattern is broken, investors jump on the bandwagon, shooting the stock price north or south.
Symmetrical Triangle Pattern
To form your symmetrical triangle pattern, draw two converging trendlines that bound the high and low prices. Your trendlines should form (you guessed it) a symmetrical triangle, lying on its side.
How to Profit from Symmetrical Triangles
Symmetrical triangles are very reliable. You can profit from upwards or downwards breakouts. You’ll learn more about how to earn from downtrends when we talk about maximizing profits.
If you see a symmetrical triangle forming, watch it closely. The sooner you catch the breakout, the more money you stand to make.
Sideways movement, a period of rest, before the breakout.
Price of the asset traveling between two converging trendlines.
Breakout ¾ of the way to the apex.
Set Your Target Price:
As with all patterns, knowing when to get out is as important as knowing when to get in. Your target price is the safest time to sell, even if it looks like the trend may be continuing.
For symmetrical triangles, sell your stock at a target price of:
Entry price plus the pattern’s height for an upward breakout.
Entry price minus the pattern’s height for a downward breakout.
Note: As this article is getting too long, I will post another article on how I use chart later.