Those Beguiling Triangles
One of the most beguiling patterns for novice and
professional traders alike is the triangle. I know some day- and
intermediate-term traders for whom triangles are part of their bread and butter.
But even for the most devoted adherents, triangles foster both love and hate
depend on any number of factors.
Triangles are prone false breakouts. Sometimes they morph into other
patterns. Sometimes, they’re messy and its hard to figure out how to draw the
trendlines. Here is one example of this last point:
The problem with this intraday triangle from August 17, 2000 in Rambus
(
RMBS |
Quote |
Chart |
News |
PowerRating)
is that there are two spike highs that don’t fit neatly into the heart of the
congestion area. My solution? Ignore them and take whatever you can get from the
pattern. Doing this seems to work often enough that it’s worth a go if you have
good money management skills.
In this case, if you review the subsequent price action in RMBS, you’ll see
that this triangle made a false breakout and then morphed into a sideways
trading range pattern. For me, this was an example that reinforced the value of
stops.
See you tomorrow,
Eddie
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