Stock Trading with Chart Patterns

Analysis September 5th: Megaphones and Triangle Patterns

September 5th, 2011 Steve

A Megaphone (or a Broadening Wedge) pattern has appeared at the Heidelberg Cement stock.

The Megaphoneis usually a reversal chart pattern, that indicates a reversal of the trend. In this case, it indicates that price may be going upwards and change the trend. However, the overall trend is strongly bearish so it is unlikely that price will break downwards.

We will trade this pattern in the following way:

Enter Long if price touches the lower trend line and bounces upwards. Stop loss will be just below the down swing, and target will be at the opposite trend line or at 30.15 level.

Enter Short if price touches the upper trend line again and bounces downwards. The target of this entry will be the level of 26.7.

Enter Short if price breaks the lower trend line, and enter another Short if price performs a pullback after it breaks the lower trend line. The target of both trades will be as the size of the pattern, which is $3.37.

A Triangle chart pattern appeared at the Grp Danone at the daily chart.

This article explains how to trade triangles. and after reading it you will see that we dont usually trade symmetrical triangles like the one at the Grp Danone stock, as these signals are very unreliable and you can get many fakeouts (price breaks out and then reverses) trading those patterns.

Generally it is a continuation pattern, so we will expect price to break the lower trend line downwards, and continue the downtrend. We dont recommend trading this pattern.

Another Triangle pattern appears at the 4-hour chart of EADS stock.

This triangle is an example of a very nicely drawn symmetrical pattern that was confirmed many times. Note that price has broken this chart pattern downwards at the last bar. If you want to read more, this article explains how to trade triangles .

We dont recommend trading symmetrical triangles as they are not so reliable, and recommend trading only asymmetrical triangles (triangles with one horizontal trend line) as they are much more reliable.

Have a good trading week!

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