Bulkowski on Symmetrical Triangles

In this trade, I thought the stock would climb far enough to make a second peak, similar to the one at A, and then drop. Indeed, the stock climbed to the green dot (ultimate high) before turning into a loss. The stock didn't reach the measure rule target.

Stocks rise in a stair-step fashion. The rise is often proportional to the step. In this case, we see a long horizontal step (A, in red), followed by a rise that is too short for the length of the step. So I guessed that the stock would continue higher, and it did. The red dot says the stock hit the measure rule target.

Sometimes chart patterns (like flags) are half-staff patterns. By that, I mean they appear in the middle of a trend. This is an example. Trend CD is almost equal to AB with the symmetrical triangle in the middle. After a gap down at E, caution is advised but the trade worked well. Unfortunately, I haven't found a good way to determine if a pattern will appear midway in a trend.

In this trade, I predicted that overhead resistance setup by the early 2011 sideways move (highlighted by the two long red lines) would stop the upward move. The stock fell short of the 53.32 target and plunged for a loss.

The uptrend began in October 2012 and I guessed that the first symmetrical triangle would meet the measure rule target. It did. However, the second one was too far along in the uptrend so I thought it would fail. And that's what happened.

This is the same stock as the prior chart. In this example, I thought that 1) the uptrend was too long (which is why the prior trade failed) and 2) that the stock would not be able to rise far enough to meet its target. And it didn't. The trade ended in failure after being scared away by overhead resistance setup by the peak circled in red. It might also be worth exploring that if the prior symmetrical triangle failed then this one might, also. I don't know if that's true or not.

Something happened to the stock at A, where it gapped down. I didn't do research to find out the reason why. Should you take the trade at symmetrical triangle B? Probably not. Yes, you might expect a retrace (a bounce), but it already happened. If a company is having trouble with cost overruns at a plant they are building (for example), they might not get it solved by the end of the next quarter, so another gap down could occur. Even though this trade worked (the red dot shows that it hit the target during that price bar), holding longer meant taking a loss. In short, this stock is too risky to own.

Indeed, in another symmetrical triangle (not shown) starting 4/27/2012, the stock gapped down, the triangle formed as part of the bounce, and the triangle broke out downward and made another gap lower.