Lesson in triangles – GMG

Good evening all,

I have a post today on how a triangle pattern on a chart looks like. For those who are very experienced, you probably will want to scroll down and look at other posts. I will be talking about the basics of a triangle chart pattern.

The counter in focus is GMG, 5IM.SI. Back in 2010, GMG traded in an ascending triangle for about 5 months. The triangle looks neat, with nice price action forming the body of the triangle. Click on the chart for a closer look at the annotations. After drawing your trendlines, a final confirmation on this triangle chart pattern should be to look at volume. What we want to see will be declining volume. In this case, we have got very good volume behaviour (yellow arrow). As you can see from the chart, during the initial stages of the triangle, volume was heavy as depicted by the long volume bars. Slowly, volume contracted. At the end, a breakout occured (green arrows), and volume was sky-high.

One thing I have observed in confirmed triangle patterns is that sometimes a pullback occurs just after breakout. Take a look at the chart to see what I mean. This pullback presents an opportunity for “latecomers” to get in before it is too late. In reality, I know it is hard to trade on a pullback. What if the breakout was false and price is ready to crash downwards? Yes, this is a total possibility. It has happened on occasion. I cannot comment on this as it is just impossible to tell if a breakout was real or not. Maybe some will suggest looking at the fundamental side for help. Rumours of a takeover? I can say that when faced with a pullback, the best thing to do is to take on a trader’s mentality – better to cut your loss quick. Get your stop in – or your plan B – at a support level. For an ascending triangle, most will suggest the top line of the triangle as support. Whatever way you use to identify support, call upon it. If the breakout was a false one, then you have to take the loss once price breaches support. More often than not, though, most triangles should work out quite well. The upside potential can range from 10% to more than 25% – in GMG’s case here, the projection would have been a 30% rise (blue projection arrow).

So, this is an example of a triangle that worked out perfectly. If you have spotted any triangles on any kind of charts, please feel free to drop me a comment or email. Together, we can see if it works out the way that “technical theory” suggests.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

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