Chapter 19 – Continuation Pattern and Trading Tactics

Combine – Symmetrical Triangle

Symmetrical triangle

Symmetrical triangle

CharacteristicDiscussion
Price trendCan be any direction.
ShapeTriangular. Prices move between two converging trend lines.
Trend linesTwo trend lines bind prices; the bottom trend line slopes up and the top one slopes down.
CrossingPrice must cross the pattern from side to side, filling the triangle with price movement, not white space.
TouchesPrice must touch each trend line at least twice, forming distinct valleys and peaks.
VolumeTrends downwards most of the time.
BreakoutUpward or downward and at 75% of the way to the triangle apex.
ActionBuy or sell depending on the direction of breakout.
FailurePrice moves back into the triangle and breaks support and resistance.

Combine – Rectangle

Rectangle price pattern

Rectangle price pattern

CharacteristicDiscussion
Price trendCan be any direction.
ShapeRectangular. Prices have flat tops and flat bottoms, crossing the pattern from side to side following two parallel trend lines.
Trend linesTwo horizontal or near horizontal trend lines bind price action.
TouchesPrice must touch each trend line at least twice, forming distinct valleys and peaks.
VolumeTrends downward most of the time, can be irregular as well.
BreakoutIf prices are sticky near upper trend line, likely to break up. If prices are sticky near lower trend line, likely to break down.
ActionBuy when price closes above resistance line with high volume; sell when price closes below the support line.
FailurePrice moves back into the rectangle and continue sideway movement.

 

Continuation – Ascending Triangle

Ascending triangle

Ascending triangle

CharacteristicDiscussion
Price trendCan be any direction.
ShapeTriangular. Prices move between two converging trend lines.
Trend linesTwo trend lines bind prices; the top trend line is horizontal and the bottom one slops upwards.
CrossingPrice must cross the pattern from side to side, filling the triangle with price movement, not white space.
TouchesPrice must touch each trend line at least twice, forming distinct valleys and peaks.
VolumeTrends downwards most of the time.
BreakoutUpward most of the time and 60% of the way to the triangle apex.
ActionBuy when price closes above horizontal resistance line with high volume.
FailurePrice moves back into the triangle and breaks support and resistance.

 

Continuation – Descending Triangle

Descending triangle

Descending triangle

CharacteristicDiscussion
Price trendCan be any direction.
ShapeTriangular. Prices move between two converging trend lines.
Trend linesTwo trend lines bind prices; the bottom trend line is horizontal and the top one slopes downward.
CrossingPrice must cross the pattern from side to side, filling the triangle with price movement, not white space.
TouchesPrice must touch each trend line at least twice, forming distinct valleys and peaks.
VolumeTrends downwards most of the time, gets quite low before breakout.
BreakoutDownward most of the time and 60% of the way to the triangle apex.
ActionSell when price closes below horizontal support line.
FailurePrice moves back into the triangle and breaks support and resistance.

 

Continuation – Bull Flag and Bear Flag

Bull flag and bear flag

Bull flag and bear flag

CharacteristicDiscussion
Price trendCan be any direction.
ShapeLooks like a small rectangle often tilted agains the prevailing price trend.
Trend linesPrices move between two parallel trend lines.
DurationFlags are short, less than 3 weeks long. Patterns longer than that are rectangles or channels.
FlagpoleFew days of steep fall/rise before flag formation.
VolumeTrends downward most of the time.
Falling trendFlag must point up suggesting temporary disruption to underlying trend.
Rising trendFlag must point down suggesting temporary disruption to underlying trend.
ActionBuy or sell depending on direction of breakout and underlying trend.
FailurePrice moves back into the flag and break support and resistance.

 

Continuation – Bull Pennant and Bear Pennant

Bull pennant and bear pennant

Bull pennant and bear pennant

CharacteristicDiscussion
Price trendCan be any direction.
ShapeLooks like a short symmetrical triangle.
Trend linesPrices move between two converging trend lines.
DurationPennants are short, less than 3 weeks long. Patterns longer than that are symmetrical triangles, rising or falling wedges.
FlagpoleFew days of steep fall/rise before pennant formation.
VolumeTrends downward most of the time.
ActionBuy or sell depending on direction of breakout and underlying trend.
FailurePrice moves back into the pennant and break support and resistance.

 

Chapter 20 – Art of Trading

  • Know the risk and return of each trade.
  • Never lower a stop, cut loss if you need to.
  • Know your stocks both fundamental analysis and technical analysis.
  • Choose a stock with a ‘comfortable’ price action that fits your trading psychology.
  • Ignore chat room chatter.
  • More trades don’t mean profitability.

Understand yourself, then fit an investment strategy. Get a system of trading that fit your own profile.

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Practical Technical Analysis (2006) Chapter 18

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