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Consolidation patterns and breakouts


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Consolidation patterns and breakouts

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  #1 (permalink)
 TickedOff 
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Ok say price spikes upwards and then starts to consolidate, would the consolidation pattern be an important factorin determining whether or not the momentum will continue to the upside? Like say its an ascending triangle, theres a horizontal resistance and price keeps making higher lows, this looks to me like buyers are more eager to get into a long, vs a descending triangle where you have a horizontal support but price keeps making lower highs, looks like sellers are more eager to get into a short so youd think maybe it will break lower instead.

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  #3 (permalink)
sharpshoota
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A littlebit hard to grasp your question.... But a consolidating triangle is often called "a coil" because price coils up , collecting more power before it explodes further along with the trend.
The angle of the move with the trend is most of the time much sharper than the angle of the consolidation.
I used to trade theese before when I traded stocks and options. the tricky thing was to get in when the breakout bar closed and place the stop below it.

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 shzhning 
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be careful to rely on chart pattern in determining whether the momentum will continue. a large order/strong thrust will invalidate an otherwise “perfect and pretty” pattern. in fact, it’s the momentum, or the lack thereof, that creates chart pattern.

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 tturner86 
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TickedOff View Post
Ok say price spikes upwards and then starts to consolidate, would the consolidation pattern be an important factorin determining whether or not the momentum will continue to the upside? Like say its an ascending triangle, theres a horizontal resistance and price keeps making higher lows, this looks to me like buyers are more eager to get into a long, vs a descending triangle where you have a horizontal support but price keeps making lower highs, looks like sellers are more eager to get into a short so youd think maybe it will break lower instead.

Post a chart of what you are talking about. Easier to see and understand.

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  #6 (permalink)
 Underexposed 
Calgary Alberta/Canada
 
 
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TickedOff View Post
Ok say price spikes upwards and then starts to consolidate, would the consolidation pattern be an important factorin determining whether or not the momentum will continue to the upside? Like say its an ascending triangle, theres a horizontal resistance and price keeps making higher lows, this looks to me like buyers are more eager to get into a long, vs a descending triangle where you have a horizontal support but price keeps making lower highs, looks like sellers are more eager to get into a short so youd think maybe it will break lower instead.

Chart patterns in themselves are not indicators of "momentum". An ascending triangle pattern is usually considered a bullish pattern. You are establishing the resistance/support boundaries in the fight between Buyer and Seller. For example this is a chart with an ascending Triangle that is quite well defined.



Here the Buyer has steadfastly avoided spend more than a maximum amount of money per share (about $45.40) for about 6 months.... eventually the Sellers (who have been able to raise their minimum over the same time period) get there way and it seems that they have successfully breached that upper triangle resistance.

It does not always happen that way though so spotting an ascending triangle and buying it because of it general bullish nature can trap the unwary.



Here when the apex of the triangle was neared the sellers were the losers here and the buyers successfully broke the support .

It has little to do with "momentum" the charts establish resistance/support boundaries that you pay particular attention when approaching said boundaries

In general it is not a good practice to make a purchase when falling to a support line.... the support may breach .... However it is much better to buy when rising from a support line.

Similarly, selling as you approach a resistance line (unless you are of course taking profits for other use) or shorting a stock as it rises to a resistance line is not a great practice as it may breach that line and continue rising... in the first place you lose additional profit (placing a stop-loss would capture your profit normally at that point if it were to fall) in the second you would be scrambling to cover your short (better to wait for the direction to be revealed before shorting)

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 Zxeses 
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Underexposed View Post
Chart patterns in themselves are not indicators of "momentum". An ascending triangle pattern is usually considered a bullish pattern. You are establishing the resistance/support boundaries in the fight between Buyer and Seller. For example this is a chart with an ascending Triangle that is quite well defined.



Here the Buyer has steadfastly avoided spend more than a maximum amount of money per share (about $45.40) for about 6 months.... eventually the Sellers (who have been able to raise their minimum over the same time period) get there way and it seems that they have successfully breached that upper triangle resistance.

It does not always happen that way though so spotting an ascending triangle and buying it because of it general bullish nature can trap the unwary.



Here when the apex of the triangle was neared the sellers were the losers here and the buyers successfully broke the support .

It has little to do with "momentum" the charts establish resistance/support boundaries that you pay particular attention when approaching said boundaries

In general it is not a good practice to make a purchase when falling to a support line.... the support may breach .... However it is much better to buy when rising from a support line.

Similarly, selling as you approach a resistance line (unless you are of course taking profits for other use) or shorting a stock as it rises to a resistance line is not a great practice as it may breach that line and continue rising... in the first place you lose additional profit (placing a stop-loss would capture your profit normally at that point if it were to fall) in the second you would be scrambling to cover your short (better to wait for the direction to be revealed before shorting)

Your logic and explanation is perfect, right up until your conclusion.

Both charts show perfect elliot wave theory bullish and bearish ascending triangles. The most important parts of each triangle is the price action back in march and april. Triangles are consolidation periods of the previous major moves, and when they break, they break in the direction prior to the triangle. Both charts show that.

Depending on how you count the waves, both triangles broke out on wave 9 of the mini waves in each triangle, or mini wave 8 being the waves to long/short.

-D

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 Underexposed 
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Zxeses View Post
Your logic and explanation is perfect, right up until your conclusion.

Both charts show perfect elliot wave theory bullish and bearish ascending triangles. The most important parts of each triangle is the price action back in march and april. Triangles are consolidation periods of the previous major moves, and when they break, they break in the direction prior to the triangle. Both charts show that.

Depending on how you count the waves, both triangles broke out on wave 9 of the mini waves in each triangle, or mini wave 8 being the waves to long/short.

-D

I stand by my conclusions in that post.

I don't use Elliot wave theory. I find that a simple watch of breaking of resistance/support suffices for me. the QUESTION of the OP was regarding use of Ascending Pattern charts and momentum. And I answered it correctly. To my albeit limited knowledge of Elliot Wave theory it is a mathematical model of ebb and flow of pricing... it has no momentum component to it.

So my answer to the OP was correct and my general observations of buying and selling when approaching resistance/support lines are also prudent... especially since I don't use Elliot Wave theory in my analysis. One day I may do so but until this time I will follow my current practices.

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  #9 (permalink)
 Zxeses 
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I stand by my conclusions in that post.

I don't use Elliot wave theory. I find that a simple watch of breaking of resistance/support suffices for me. the QUESTION of the OP was regarding use of Ascending Pattern charts and momentum. And I answered it correctly. To my albeit limited knowledge of Elliot Wave theory it is a mathematical model of ebb and flow of pricing... it has no momentum component to it.

So my answer to the OP was correct and my general observations of buying and selling when approaching resistance/support lines are also prudent... especially since I don't use Elliot Wave theory in my analysis. One day I may do so but until this time I will follow my current practices.

You make a good point; and like I said I do agree with you about resistance/support lines.

I know this is a tangent, but as an aside for anyone else reading the thread:

There are two major working trading "families" related to Fibbonoci. Elliot Wave theory was the first fibbonoci trading model or system (outside of just measuring fibbonoci directly and trading off that)

The second, which I dont know how far back it goes, is the recent upsurge of "Harmonic Patterns", which I'd call the modern-day outcome of its Fibbonoci source and wave theory brother.

I personally like trading from Harmonic Patterns more then trying to number waves, since I find the numbering process to be WAY TO subjective, whereas with HP's, the pattern is either there or its not.

Merry Christmas everyone :-)

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  #10 (permalink)
 Underexposed 
Calgary Alberta/Canada
 
 
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Zxeses View Post
You make a good point; and like I said I do agree with you about resistance/support lines.

I know this is a tangent, but as an aside for anyone else reading the thread:

There are two major working trading "families" related to Fibbonoci. Elliot Wave theory was the first fibbonoci trading model or system (outside of just measuring fibbonoci directly and trading off that)

The second, which I dont know how far back it goes, is the recent upsurge of "Harmonic Patterns", which I'd call the modern-day outcome of its Fibbonoci source and wave theory brother.

I personally like trading from Harmonic Patterns more then trying to number waves, since I find the numbering process to be WAY TO subjective, whereas with HP's, the pattern is either there or its not.

Merry Christmas everyone :-)

I understand.... there are many ways to skin the TA cat. I have not learned Fib's or Harmonics or Elliot wave stuff. You may have studied it for a while and made some sense of it and that is all good.

If you look at my journal (icon in the bottom left of the signature) you will see that I have developed a suite of indicators and I understand their interactions.... I have tried to show how I use them... I have been quite detailed in my approach. I have a long term fantasy portfolio which is fantasy only in the fact that the stocks in it are not physically traded in reality but the trades I announce beforehand are made based on real data of the day following so it is as close to reality as I can make it... I record on a biweekly basis how well this portfolio and trades are performing.... I am open as to the gains and losses in the week and do not hide anything from the reader.

If you follow this journal you will see as of Feb/2014 I am a little over 8% to the good in a rather ragged market (Canadian stocks)... have not lost any dollars from the original poke and if January goes well I will finish about 12-15% gains for the 12 months...as a long term trader.

So ... it is not bragging to say that my approach to TA has some merit... and my conclusions are not WRONG, though sometimes they can be improved perhaps.

Different strokes for different folks.... there is not just one form of TA. If one is smart, one can cobble together a pretty good strategy by observing what others do and adapt some or all of it to your strategy. That is what I have done over the past 10-12 years....

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  #11 (permalink)
goun
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Does anyone knows any bibliography that explain this kind of pattern?

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 cory 
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goun View Post
Does anyone knows any bibliography that explain this kind of pattern?

sure, try this
Let me google that for you

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