Chart Lesson 3: Broadening Bottoms, Right-Angled and Descending

Broadening Bottoms, Right-Angled and Descending

Identification:

Shape:  Looks like a megaphone tilted down.  A horizontal line on top and the bottom, a down-sloping trend line.

Top Horizontal Line:  Two minor highs nearly the same price level.  Premature breakouts are rare, so buy above resistance.

Once recognizing the formation:

When the price is going up:

Buy the Breakout Up:  Buy after price closes above the resistance line.

If the Breakout Fails:

Go Short at the High:  Sell short after price has begun to head back down from the top trend line.

When the price is going down:

Sell the Breakout Down:  Set a sell order below the lower support trend line.

If the Breakout Fails:

Go Long at the Low:  Buy after the stock makes it’s turn up at the lower trend line.

Partial Rise or Decline:  When prices curl around on a partial rise or decline and return to the trend line, they usually break out immediately.

Chart 4: USO trading in a range

The USO daily chart shows that the Oil Fund is trading in a range.  On the right of the chart you can see the price bouncing from just below the top yellow line down to just above the bottom.

The way to trade this when the price is rising off of the bottom would be to set a buy order at the top line of $11.65 in case the price breaks out of the range to the upside.  A sell order of half of your position would be set at $12.00 with a trailing stop of the other half at $11.90.  A stop loss order would be placed at $11.60 in case of a fake out.  If the price does not break above the range, you would place a sell order after the price begins to head back down with a stop loss at $11.65.  A sell order of half of your position would then be set at $11.07 with a trailing stop for the other half set at $11.10.

When the price is falling, you would set a short order at the bottom line of $11.00 in case of a breakout down, and a stop loss at $11.10 .  If the price does not break down, you would place a buy order after the price begins to head back up with a stop loss of $11.00.  A sell order of half of your position would then be placed at $11.60 and the trailing stop of the other half would be moved to $11.50.

Chart Lesson 2: Broadening Formation Right-Angled and Ascending

Broadening Formation, Right-Angled and Ascending

Identification:

*Short-term Bearish*

Shape:  Looks like a megaphone with the base horizontal

Trend Lines:  A horizontal (or nearly) bottom line (support) connects the bottom lows.  An up-sloping trend line (resistance) connects higher highs.

Once recognizing the formation:

When the price is going up:

Buy the Breakout Up:  Set buy order above Upper Trend (resistance) line.

If the Breakout Fails:

Go short at the High:  Sell short after the price starts heading down from the top of the trend line.

When the price is going down:

Sell the Breakout Down:  Set a sell order below the horizontal Bottom Trend (support) line.

If the Breakout Fails:

Go Long at the Low:  Buy after the price starts heading back up.

Partial Decline or Rise:  A partial decline from the top, or a partial rise from the bottom is a reliable breakout signal.  On a partial decline from the top, go long; on a partial rise, go short.