John Jacques's Avatar
John Jacques
published in Blogs
Feb 24, 2018

Stock Pattern Opportunities - (02/23/18)

Current Trading Opportunity #1 — Broadening Bottom (Bullish)

Pattern Description
The Broadening Bottom pattern is formed when the price of a security progressively makes higher highs (2, 4) and lower lows (1, 3, 5) following two widening trend lines. The price is expected to move up or down past the pattern depending on which line is broken first. What distinguishes a Broadening Bottom from a Broadening Top is that the price of the security is declining prior to entering the pattern formation.

This type of formation happens when volatility is high or increasing, and when the price of a security is moving with high volatility but little or no direction. It potentially indicates growing investor nervousness and indecisiveness.

Trading Idea
Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the upward breakout price/entry point. To identify an exit, compute the target price by adding the pattern height (H on the chart) to the breakout price. The pattern height is difference between the pattern’s highest high and its lowest low.

To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to sell at or below the breakout price.
 

Current Trading Opportunity #2 — Broadening Top (Bullish)

Pattern Description
The Broadening Top pattern forms when the price of a security progressively makes higher highs (1, 3) and lower lows (2, 4) following two widening trend lines. The price is expected to move up or down past the pattern depending on which line is broken first. What distinguishes a Broadening Top from a Broadening Bottom is that the price of the security is rising prior to entering the pattern formation.

This type of formation happens when volatility is high or increasing, and when a security’s price is moving with high volatility but little or no direction. It potentially indicates growing investor nervousness and indecisiveness.

 

 

Trading Idea
Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the upward breakout price/entry point. To identify an exit, compute the target price by adding the pattern height (H on the chart) to the breakout price. The pattern height is difference between the pattern’s highest high and its lowest low.

To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to sell at or below the breakout price.
 

Missed Opportunity #1 — Cup-and-Holder Inverse (Bearish)

 

Pattern Description
The Inverted Cup­-and-­Holder (sometimes called Inverted Cup­-and-­Handle) pattern forms when prices rise then decline to create an upside-­down “U”­like shape (1, 2, 3, also known as the Cup), followed by a shorter relatively straight price increase that bounces from the right lip (from 3 to 4, creating the Handle).

The rising handle forms as a result of mounting buying pressure created when the stock retests a low at the right lip of the cup. Once the buyers give up, sellers take over and the stock has the potential to decline rapidly.

Trading Idea
If the price breaks out from the top pattern boundary, day traders and swing traders should trade with a DOWN trend. Consider selling the stock short or buying a put option at the downward breakout level. To identify an exit, compute the target price by subtracting the pattern’s height (the difference between the highest price and the support levels) from the price at the right cup lip. The confirmation move is the breakout of the price below the right cup lip.

To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to buy back a short position or sell a put option at or above the breakout price.
 

Missed Opportunity #2 — Triangle Symmetrical Bottom (Bullish)

Pattern Description
The Symmetrical Triangle Bottom pattern forms when the price of a security fails to retest a high or a low and ultimately forms two narrowing trend lines. As the support and resistance levels consolidate, it forms a triangle (1­5). Symmetrical Triangles are characterized by the upper line sloping downward and lower line sloping upward. The price movement inside the triangle should fill the shape with some uniformity, without leaving large blank areas.

This pattern is commonly associated with directionless markets, since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout).

Trading Idea
If the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the breakout price level. To identify an exit, compute the target price by adding the pattern height from the breakout point. The height of the pattern is the difference between the highest high and lowest low.

To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to sell at or below the breakout price.

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