When You Learn Technical Analysis, Don't Forget The Ascending Continuation Triangle
Although we have already looked at a Classic Pattern in the Learn Technical Analysis Free series, another important pattern to understand early on is the Ascending Continuation Triangle. This pattern is formed by two converging trendlines -- a horizontal upper line that scrapes along two steady "highs" of a trading range and an increasing lower line that follows two higher lows of the same range.
Investors who want to learn technical analysis are wise to understand the Ascending Continuation Triangle as it is normally a short-term pattern that takes form over one to three months. This allows for quick gains if the pattern is accurate and minimal losses if it is false.
For investors who are just starting to learn technical analysis, remaining patient as the pattern takes shape is often more difficult than spotting the pattern itself. To confirm the pattern, here are a few things one should look for.
Volume
This is by far way more important than any other fact. As the price swings back and forth during its rallies, volume should diminish. When the pattern is confirmed, volume should spike (or be above the average while the pattern took shape). Alternately, if there is no spike at breakout, then it is more likely that this pattern is less reliable.
Moving Average
If the pattern's prices come close to or touch the 200-day Moving Average, the pattern is stronger and investors should consider it more reliable than if the prices were not close.
Duration
Duration also needs to considered, something many investors who have just started to learn technical analysis tend to forget. Break-out will happen when the price penetrates the upper horizontal line (e.g. the resistance line), but this occurrence should happen long before the pattern reaches the apex, or right-side tip of the triangle. Generally speaking, this break-out should occur between three-quarters to two-thirds of the way along upper line.
As far as providing a fundamental explanation for why this pattern occurs, investors should consider a company or a institutional investor who wants to offload a large quantity of stock at a pre-determined price level. As the stock price reaches such a level, buyers will draw on the large supply and will consequently push the price down, forming something of a resistance level. However, as prices bounce back and the supply is depleted, the price will shoot through the previous resistance levels to new highs. This is exactly what we like to see when we start to learn technical analysis -- the perfect end to a classic pattern. - 23226
Investors who want to learn technical analysis are wise to understand the Ascending Continuation Triangle as it is normally a short-term pattern that takes form over one to three months. This allows for quick gains if the pattern is accurate and minimal losses if it is false.
For investors who are just starting to learn technical analysis, remaining patient as the pattern takes shape is often more difficult than spotting the pattern itself. To confirm the pattern, here are a few things one should look for.
Volume
This is by far way more important than any other fact. As the price swings back and forth during its rallies, volume should diminish. When the pattern is confirmed, volume should spike (or be above the average while the pattern took shape). Alternately, if there is no spike at breakout, then it is more likely that this pattern is less reliable.
Moving Average
If the pattern's prices come close to or touch the 200-day Moving Average, the pattern is stronger and investors should consider it more reliable than if the prices were not close.
Duration
Duration also needs to considered, something many investors who have just started to learn technical analysis tend to forget. Break-out will happen when the price penetrates the upper horizontal line (e.g. the resistance line), but this occurrence should happen long before the pattern reaches the apex, or right-side tip of the triangle. Generally speaking, this break-out should occur between three-quarters to two-thirds of the way along upper line.
As far as providing a fundamental explanation for why this pattern occurs, investors should consider a company or a institutional investor who wants to offload a large quantity of stock at a pre-determined price level. As the stock price reaches such a level, buyers will draw on the large supply and will consequently push the price down, forming something of a resistance level. However, as prices bounce back and the supply is depleted, the price will shoot through the previous resistance levels to new highs. This is exactly what we like to see when we start to learn technical analysis -- the perfect end to a classic pattern. - 23226
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posted by X - Men @ 1:46 AM
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