Triangles ect.

Quote from indahook:

Pennants, triangles and flags are my moneymakers.

I do not use pattern recognition software. The human eye is much better once you know what to look for.

Using a 2 year daily bar chart and focusing down to a 3 month candlestick chart. The extended bar chart allows a total view. I dont ever go long when there is price action above the pattern and vice versa for shorts. I want the issue to move unfettered by any inventory that a bag holder may be hanging on too. The candle view allows a more intricate look at the most recent action. For example, are there long shadows that have recently tested support or resistance within the pattern?

My scan is as follows.

- 4800 domestic equities..my entire universe

- ADX above 20 (trending issue) Since these patterns are consolidation/continuation this indicator works well here as you want to find the issues that are taking a break in a nice trend.

- price 20-60..just numbers I like to trade. I usually avoid high priced names because I simply dont want to put large amounts of capital to work for a few hundred shares.

- 21 day avg volume no more than 1mm..lower volume often mean small float which equals dynamic moves...the lower the volume the better IMO.

End of day this usually produces about 60 candidates. I`ll scan each of them for the patterns. Then I`ll draw my trendline connecting the highs and lows that create it. Then the only job to do is wait for an alert when a line is breached. Or if you are more aggressive place stops a tick outside the pattern.

I use a fixed 10% of portfolio per trade size and stop out if I lose 3% of that. I`ll stay in as long as the trend holds..i.e HH`s or LL`s. Once a HH or LL is truncated i`m gone.
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Thanks for the detailed description of how you scan and use triangles. I know everyone needs to develop their own exact style but your post provides a lot of insight.

So correct me if I'm wrong but the purpose of the 2 year bar chart is to weed out candidates that have gone above the resistance line in an ascending triangle pattern for example and vice versa if you're bearish? And what are "shadows" that you refer to?

Also, what is ADX? A poster earlier spoke about Average True Range it sounds similar. What is the difference and how are they useful in their own ways?

I appreciate the help and patience with what may be elementary questions for many of you.

Thanks
 
Indahook,

If you never take trades where price action is above the pattern in the 2 year chart for a long trade and vice versa, then therefore you don't take any trade that isn't going to be making either higher 2 year highs for a long trade and lower 2 year lows for a short trade, correct?

Thanks
 
Quote from Andy_Trade:

So correct me if I'm wrong but the purpose of the 2 year bar chart is to weed out candidates that have gone above the resistance line in an ascending triangle pattern for example and vice versa if you're bearish? And what are "shadows" that you refer to?

Also, what is ADX? An poster earlier spoke about Average True Range it sounds similar. What is the difference and how are they useful in their own ways?
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Regarding a longer term chart. I do not want to see any price action above/below the possible breakout level in the pattern. I want the issue to be able to freely run/tank when the move begins.

The ADX =

1. ADX (AVERAGE DIRECTIONAL INDEX )
2. The ADX (AVERAGE DIRECTIONAL INDEX) measures the strength of a prevailing trend. This indicator can also be used to identify the deterioration of an ongoing trend. The greater the ADX value, the more market is trending.
3. Who is credited with developing this indicator?
Welles Wilder
4. When was this indicator developed:
Late 70's

It is a derivative of the DMI+/DMI-..but all you really need to know is that when its above 20 the issue is trending. If you really want to delve into indicators(and you should :-) ) get a copy of this book = http://www.amazon.com/New-Trading-S...6729420?ie=UTF8&s=books&qid=1194635265&sr=1-1 Dont let the title fool you, there is nothing cheesy about it. All the mathematics you can handle and then sum..(pun intended)

The calculations of ADX is far beyond the scope of this thread. But Perry`s book is outstanding.

Average true range is a measure of issue volatility, ADX measure the directional movement.

I`ll post some charts examples over the weekend.
 
Okay thanks. I think I get it. So basically if you for instance had an ascending triangle, the underlying has consolidated @ 50, you wouldn't enter the trade if there was any action above the price of 50 on the 2 year chart?

If you saw a bearish stock and found a descending triangle pattern, with the stock consolidating @ 40 you wouldn't enter a trade if there is price action any time in the last 2 years under 40.

Thanks
 
Quote from Andy_Trade:

Okay thanks. I think I get it. So basically if you for instance had an ascending triangle, the underlying has consolidated @ 50, you wouldn't enter the trade if there was any action above the price of 50 on the 2 year chart?

If you saw a bearish stock and found a descending triangle pattern, with the stock consolidating @ 40 you wouldn't enter a trade if there is price action any time in the last 2 years under 40.

Thanks
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Exactly. Some may consider that very restrictive. But it works for me. I want to see wide open space ahead!
 
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