Trading Call: Buy at the level of 105
Target of 116 – 125 - 156 levels.
A symmetrical triangle pattern is relatively easy to
identify. In addition, triangle patterns can be quite reliable to trade with
very low failure rates. There is a caution concerning trading these patterns,
however. As mentioned previously, a triangle pattern can be either continuation
or reversal patterns. Typically, they are continuation patterns. To achieve the
reliability for which the triangle is well known, technical analysts advise
waiting for a clear breakout of one of the trendlines defining the triangle.
1. Occurrence of
a Breakout - Technical
analysts pay close attention to how long the triangle takes to develop to its
apex. The general rule, as explained by Murphy, is that prices should break out
- clearly penetrate one of the trendlines - somewhere between three-quarters
and two-thirds of the horizontal width of the formation.6 The break out, in
other words, should occur well before the pattern reaches the apex of the
triangle. . Adherence to this rule is strongly advised by Yager, She adds that
the closer the breakout occurs to the apex the higher the risk of a false
breakout.
2. Price Action - Unlike ascending and descending
triangles which give advance notice of their intentions, the symmetrical
triangle tends to be a neutral pattern. Murphy advises that the symmetrical
triangle is generally a consolidation pattern. This means an investor can look
to see the direction of the previous trend and make the basic assumption that
the trend will continue. However, many experts advise investors that because
the breakout direction could go either way that they wait until the breakout
occurs before investing in or selling the stock. Schabacker refers to a
symmetrical triangle as a "picture of hesitation.
3. Measuring the
Triangle - To project the
minimum short-term price objective of a triangle, an investor must wait until
the price has broken through the trendline. When the price breaks through the
trendline, the investor then knows whether the pattern is a consolidation or a
reversal formation. To calculate the minimum price objective, calculate the
"height" of the formation at its widest part - the "base"
of the triangle. The height is equal determined by projecting a vertical line
from the first point of contact with the trendline on the left of the chart to
the next point of contact with the opposite trendline. In other words, measure
from the highest high point on one trendline to the lowest low point on the
opposite trendline.
Both these points will be located on the far left of the
formation. Next, locate the "apex" of the triangle (the point where
the trendlines converge). Take the result of the measurement of the height of
the triangle and add it to the price marked by the apex of the triangle if an
upside breakout occurs and subtract it from the apex price if the triangle
experiences a downside breakout.
For example, working with a symmetrical triangle, assume
the highest high of the pattern occurs at 100 and the lowest low at 80. The
height of the pattern is 20 (100 - 80 = 20). The apex of the triangle occurs at
90. The pattern has an upside breakout. Using the measuring rule, the target price
is 110 (90 + 20 = 110).
4. Duration of
the Triangle - As mentioned
before, the triangle is a relatively short-term pattern. It may take up to one
month to form and it usually forms in less than three months.
5. Forecasting
Implications - Once breakout
occurs, the symmetrical triangle tends to be a reliable pattern. Bulkowski
calculates failure rates ranging between 2% and 6% for symmetrical triangles
after a valid breakout.
To avoid mistaking a false move for a valid breakout,
experts advise waiting a few days to see if the breakout is dependable.
According to Murphy, minimum penetration criteria would be a closing price
outside the trendline and not just an intraday penetration. Investors do have
time once a breakout has occurred.18 According to Bulkowski, when considering
symmetrical triangles, an investor will have over five months to reach the
ultimate high after an upside breakout and less than half that time after a
downside breakout
Because premature breakouts (where prices close outside
of the trendline) are so common, don't dismiss the pattern if it has
experienced such a breakout. According to Bulkowski, however, "premature
breakouts do not predict the final breakout direction or success or failure of
the formation."
WTI Crude oil, working with a
symmetrical triangle, the highest high of the pattern occurs at 115 $ and the
lowest low at 64 $. The height of the pattern is 51 $ points (115 – 64 = 51).
The apex of the triangle occurs at 105 $. The pattern has a upside breakout. Using
the measuring rule, the target price is 156 $ (105 + 51 = 156 $).
With the above move it is also showing
A-B-C Pattern Formation where it is expected to test 161% expansion of A-B from
point C which comes to 56 levels. Point a is at 64 & Point b is at 115,
point c at 75 has given retracement of 76.4% of the rise and confirming the upside
side target. Taking 161.8 % Fibonacci Expansion of the A to B from the point C,
comes to higher level of 156 $ which can be seen in
near term.
