One strategy is to trade triangle breakouts to the direction of the breakout.
Sometimes a stock which trades on a wide range gets squeezed from top and bottom in a triangular envelope and trades at tight range. Let's look at a historical chart of Mastercard which shows a triangle formation breakout on July 15, 2009:
Now lets fast forward to today and see what would have resulted from going long on the upside breakout of Mastercard from the triangle formation.
A word of caution at this point is that not all of the breakouts lead to such an upside. This was obviously assisted by the rally in the equity markets resulting from hopes of recovery and cheap capital. Sometimes after a breakout, there is downside follow through and the stock whipsaws between breakouts to the upside and downside. In these situations where follow through is weak or indecisive, its is best to put a tight stop-loss and look for other opportunities.
No comments:
Post a Comment