Ascending Triangles - Gotta love 'em!

[basonista]

It was suggested on a thread by fousc that another thread on ascending triangle plays be started.  This is probably my favorite play but I'll have to post the technical stuff later.  Leaving a couple of charts for now for potential breakout plays:

[basonista]

Diet is another good one:

[calven]

YES! I love this thread! (APPLAUSE)

I will post the charts tonight but my ascending triangles are - VLG, MCU(BREAKOUT), GEPT, PGN, HCBK (BReAKOUT)

I think we should keep a running list of "pre breakout" ascending triangles....what short of criteria do we want for these? Maybe a minimum of two trendline touches on both resistance and support levels>?? What do you guys think?



ASCENDING TRIANGLES LIST
GEPT
VLG
PGN
DIET
IMNR
VRDI

[basonista]

I guess this should be a lesson to everyone not to touch my picks.  All 3 broke to the downside today!  The sad thing is that they are all 3 in my portfolio.   One of the technical aspects that I will post is that ascending triangles should be bought on the breakout (and possibly on the test of the breakout point) for a better chance of gains.  Buying on the ascending trendline bounce is riskier although can result in greater gains.

[calven]

Yes these picks are very volatile since they are in a coil pattern....

The best risk reward opportunity comes when the "neckline" is broken....

I like to place my buy just over the top resistance line. - As my quote says to the left "Buy the breakouts - sell the breakdowns"

I have simplified all of my trading to that very statement. keep it simple....and stick to the plan. Ascending triangles seem to be the best way to trade for me... I buy when the stock breaks over the resistance line and enter a stop limit just under the old resistance line once I buy in.



Ascending triangles are chart patterns formed by support and resistance trendlines converging to one point - the breakout point. Typically the support line (the line below the price) has a positive slope while the resistance line (the line above the price) is nearly horizontal, forming a right triangle.


Price Action
Typically the price moves within the triangles range, slowly coiling (consolidating) before it breaks out. These breakouts typically are 5% or more, occur on heavy volume, and are in the direction of the prevailing trend (up). It is important to look at the following elements of price action before entering a trade:

High positive volume - lots of buyers
Low negative volume - not many sellers
Highest relative positive volume on breakout
Price has not hit the top resistance three times; if it has, this is bearish
Price has hit the bottom support three times; if it has, this is bullish
Here is what a typical setup looks like:



Here we can see that COGT broke out after consolidating within the two trendlines in the ascending triangle pattern. You can also see the increasing positive volume when the breakout occurred, which confirms the move.

Strategies
There are many strategies that can be used to effectively trade ascending triangles. Here are a few of the more popular ones:

Call Option Ratio Backspreads - This is an advanced options play that consists of buying two at the money calls, and selling one out of the money call. This creates a situation in which a healthy profit can be made if a breakout occurs, and a small profit can be made if a strong breakdown occurs. The only situation resulting in loss would be a stagnant price - which is uncommon with this type of pattern.
Fibonacci Targetting - Those wishing to trade the core instrument instead of using derivatives will find the Fibonacci studies very useful. Fibonacci extensions can be used to predict breakout price targets by setting 0% at the base of the triangle, and 100% at the resistance line. Stop-loss points can be identified by setting a Fibonacci retracement up from the 0% to the 100% mentioned above.
Buy on Retrace - Those not wishing to risk a breakdown can wait for the underlying instrument to breakout. The price usually revisits the prior resistance before continuing its move up. Note that this does not happen all the time, and it often takes awhile for the retrace to occur.
Confirmations
Obviously one of the key components to successfully trading ascending triangles is being able to confirm a breakout when it occurs. Some common confirmations include:

High volume (at least highest spike since the base)
Bullish candles (primarily engulfings)
MACd divergence
MA breakout near trendline breakout levels
Conclusion
Ascending triangles are relatively easy to pick out and safe to trade, so long as you have defined entry and exit points. You will find that these patterns correctly predict breakouts close to 80% of the time if properly identified; they key is knowing when to take profits, and when to cut losses.

[calven]

Id like to come up with some formal requirements for an "Ascending Triangle List"

I think we need to identify certain characteristics to identify ideal triangles.

Here are four I would like to submit -

At least 2 definate top resistance line touches
At least 2 support level bottom line touches
Flat resistance line
Upsloping support line

Here are 6 that I have that I think meet this criteria. Please add your thoughts to both the "Criteria" and "Ascending Triangle List" Id like to make this a running list updated daily.

ASCENDING TRIANGLES LIST
GEPT
VLG
PGN
DIET
IMNR
VRDI

[calven]

Updated Ascending Triangles List

MKTX
GEPT
VLG
PGN
CACS
DIET

[fous]

DIET

[calven]

Updated Ascending Triangles List

MKTX
GEPT
VLG
PGN
CACS
DIET*

[calven]

Updated Ascending Triangles List

MKTX
GEPT
VLG
PGN
CACS
DIET
NEGI*

[calven]

Updated Ascending Triangles List

MKTX
GEPT
VLG
PGN
CACS
DIET
NEGI
AES*

[calven]

Updated Ascending Triangles List

MKTX
GEPT
VLG
PGN
CACS
DIET
NEGI
AES
OMNI*

[calven]

Updated Ascending Triangles List

MKTX
GEPT
VLG
PGN
CACS
DIET
NEGI
AES
OMNI
MDU*

[calven]

Updated Ascending Triangles List

MKTX
GEPT
VLG
PGN
CACS
DIET
NEGI
AES
OMNI
MDU
HEC*

[basonista]

Wow guys!  Nice picks!    I'll have to post some pickes over the weekend - on tour right now and don't have time.  MSEV is another that has had a series of ascending triangle breakouts and could have another tomorrow if it moves higher.

Calven, I like your idea of having at least 2 touches on both the supply and demand lines to qualify as an ascending triangle.  As I mentioned above, DIET, IMNR and VRDI all broke to the downside thus negating their triangle formations.  That's not to say they won't move back up and use the ascending line as support again but we'll have to wait and see.  I also can't say much more than you did on your technical description of the ascending triangle formations Calven.  Applaud!  I will add something that helps describe the action from the book "How Technical Analysis Works" by Bruce Kamich:

"Let's imagine that a stock rallied to the $50 level and found resistance.  Sellers offer the stock and there is profit-taking.  Buyers retreat or realize they don't have to bid aggressively for the stock when there is a ready supply at $50.  The stock declines till bargain-hunters come in and the stock finds support.  What follows is a series of rallies to the $50 supply line or area and subsequent corrections.  As the buyers accumulate stock and the supply is reduced, the corrections don't go as deep.  The buyers must raise their bids to get the stock they want as the supply is reduced.

What develops on the chart is an ascending demand line.  The triangle forms from left to right as the horizontal supply line and the rising demand line converge.  At some point, usually before the apex, demand overcomes the supply at $50 and the stock breaks out to the upside.  While volume is usually lower during the triangle as the trading range shrinks, volume expands on the breakout."

I also read somewhere else that a stock that is to breakout and resume it's upward movement usually does so by about 2/3 of the way to the convergence of the two lines.

And as you said, Calven, buy the breakout - especially on high volume!