One of my favorite day trading chart patterns to swing trade short term is the Symmetrical Triangle breakout.
The Symmetrical Triangle formation is sort of odd since it appears as if energy increases as the stock moves closer into the head of the formation then it abruptly does a breakout.
The anticipated target of the breakout move is equal to the distance the stock moved going into the chart pattern.
Nevertheless you should use the Symmetrical Triangle chart pattern in conjunction with other technical indicators like the MACD.
The MACD should have the signal and the divergence lines both trending higher.
For knowing the best time to sell after the breakout move, I choose to look at the Slow Stochastic. What I will take the time to do is fiddle with my Slow Stochastic settings for the stock or market I am trading. You should see the previous episode I did about the interactive gizmo I use to accomplish this in a few seconds. When you have the optimal settings for your trading style and that have given at the very least three correct buy and sell signals, you will have your exit mark.
Currently in the Market Vectors Steel ETF (SLX), the optimized Slow Stochastic settings are 4, 4, 2.
The plan is to buy as soon as the stock does a breakout, and exit out of the market on the Slow Stochastic cross of the %K and %D lines.
I dig this chart as well for a possible re-entry. We have had a picture perfect Fibonacci retracement of 38.2% after the Symmetrical Triangle breakout. The Slow Stochastic is back closer to oversold territory.
You have to watch out though because the 50 day moving average is below the 200 day moving average but the 50 has turned up.
On a basic level, I like steel and understand why it did a Symmetrical Triangle breakout. As the global economic recovery picks up pace, steel consumption will burst upward as economic activity spurs construction and the use of steel.
I understand we hear a lot about a double dip global recession but I just do not imagine that is very likely now after the second quarter 2010 earnings season. An estimated 60% to 70% of all companies reported an increase in earnings year over year.
Something else you should keep in mind is that fear sells and media groups know this. What headline do you think generates more interest, “Global Economic Recovery Slows But Continues” or “Fed Closes 5 More Banks, Teeters On Global Collapse”? Everybody wants to know the spooky and scary facts of such an astonishing, attention grabbing headline. The first headline is just, yawn, well, right, yippe ki-yay and let’s all hold hands and sing Kum bay ya, my Lord, kum bay ya.
You also are going into the November 2010 elections so you have Republicans and their bogus Fox News attempting to talk down the economy and certainly who do not want an economic recovery before November.
Then you have your gold insects which usually are Republicans, and who have a big financial interest at stake in the U.S. dollar falling and other gloom and catastrophic economic stats. The plan being they do not want an economic upturn as they want everybody petrified and running out buying gold.
Lastly, you have media groups like Fox News bringing together both Republican politics of attempting to stop an economic recovery before November, and gold bugs by combining the commonly shared interests of the two. That’s why you had Glenn Beck, Bill Oreilly and a few others taking money from gold companies like Gold Line.