Symmetrical Triangle Formation?

Discussion in 'Technical Analysis' started by andrewch199, Oct 3, 2010.

  1. Hi everyone,

    I have been studying technical analysis for a year or so, and consider myself still a beginner. Just wanted some advice on the following chart.

    This is a 1 year chart of Bank of China in the HK exchange.

    As the lines do not meet, this cannot be considered a symmetrical triangle formation yet, right? If the lines do meet, can I categorize this formation as a symmetrical triangle? Or is there any prerequisite that this chart is missing?

    Thank you in advance for any advice/opinion given.
     
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  2. if you can see so can everyone else
     
  3. Redneck

    Redneck

    Andrew

    First welcome



    I understand the studying TA part – been there same as you

    Also understand the attempting to label it part – also been there

    May I respectfully suggest it doesn’t really matter what it’s called…



    Here’s what you really have;

    Context – But it is defined enough, or iow – specific enough context – to trade….



    Assuming you’re working to become a trader – here’s the most important questions you must always answer;


    How would you frame up a trade – based on the context you’ve created – while risking only what your account can tolerate (the appropriate amount you’re willing to lose)

    And to this end….

    Which direction would you enter

    Where (specific price) would you exit for a loss

    Where (specific price) would you exit and take profit

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    Of lesser import – but only very slightly – Are you day trading…, swing trading…, or investing…

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    This is not a slam Sir – but personally I would not trade that context in either 3 modes (day, swing, or invest)

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    Now if you find all the above useless – then yeah you could call it a symmetrical triangle – the top and bottom lines are both angled – and the lines will meet eventually if you extrapolate them out to the right

    It may ALSO be a flag or a pennant – but like I said – doesn’t really matter what’s it’s called/ labeled in the bigger picture

    RN
     



  4. Form your triangle by getting rid of the Nov top and the Feb bottom and instead using the remaining points - you will have a nice a-b-c-d-e.

    I don't have the data but the above seems like a decent shot.

    Try it.


    note: your lower line could be used as just a trendline.

    :)
     
  5. No, that's very helpful, thank you. I understand what you're trying to say completely, and I know that is one area I will need to expand further into eventually.

    Having said that, do you know of any useful reading that talks about constructing or framing a trade, as you mentioned above? Specifically, I am looking towards ones that talk about trend following, investing or swing trading.

    Are there any helpful material that could offer concrete explanations as to this area?

    Lastly, out of curiosity, what are the factors from this chart that deter you away from investing in this stock?

    Thank you.
     
  6. Redneck

    Redneck

    No, that's very helpful, thank you. I understand what you're trying to say completely, and I know that is one area I will need to expand further into eventually.

    Andrew,

    You are Very Welcome


    I’m going to answer this post in two parts

    Part 1


    Having said that, do you know of any useful reading that talks about constructing or framing a trade, as you mentioned above? Specifically, I am looking towards ones that talk about trend following, investing or swing trading.

    =================================================================

    No – I’ve never seen one central repository where everything is outlined, besides any book on the subject would be from the author’s eye/ view point… you need to develop your eye, and your view point – this is where screen time on SIM pays dividends

    Here are a few thoughts in shotgun fashion on how to draw lines to frame up trades – I’ll ask you to organize them in a form that makes sense to you

    ------------------------------------------------------------------------------------------------------------------

    Straight lines are your friend – albeit straight horizontal lines, or straight diagonal lines

    Channels are you friend, both horizontal and diagonal

    Once you get good at channels you can work on wedges, pennants, and flags, and triangles - if you decide

    -------------------------------------------------------------------------------------------------------------------

    First start out drawing your lines on existing trends – get good at it… then switch to drawing line on trends that have not yet formed – but appear to be starting to form

    Practice drawing lines – over and over and over… till you can see trend lines without drawing them..


    ----------------------------------------------------------------------------------------------------------------

    When drawing your lines try framing up / characterizing price (with your lines) – so price is able to show you how it’s acting

    Do not draw your lines so price appears the way you think it should, or the way you want it to appear

    I realize on the surface these sentences do not make sense – but this is the difference between a trained and untrained eye – with practice these sentences will make sense, and money

    ---------------------------------------------------------------------------------------------------------------

    Guidelines for drawing lines

    Uptrend = rising lows (aka higher lows)

    Down trend = lowering highs (aka lower highs)



    Once you draw either the uptrend or down trend line – copy that line exactly (same slope) then drag it to the opposite side of PA – forming a channel


    In and uptrend don’t worry about the upper line encompassing all the PA (price is rising over time – and sometimes price gets motivated)


    In a down trend don’t worry about the lower line encompassing all the PA (price is decreasing over time – and sometimes price gets motivated)


    For an uptrend line – two touches (not breaks) of price on the bottom line – make it valid, then copy that line and drag it to the other side of PA – the other side requires only one touch (remember the top line is identical in slope)

    Same for a down trend – two touches of price on the top line – make it valid, then copy and drag that line it to the other side of PA (again identical slope)



    This is important – if the line/ channel holds – it is a trend – for as long as that line/ channel holds…

    When that line / channel no longer holds – price it NOT in that trend – now it may be in a different trend (direction), or the same trend (direction) with different momentum/ velocity (aka slope)


    In an uptrend – as price decreases slope – it is losing momentum and could reverse…, or start moving sideways – then reverse… or not

    In a down trend – as price decreases slope – it is losing momentum and could reverse…, or start moving sideways – then reverse… or not

    In steep trends – it takes energy to maintain them – that energy will not last (2007 was not energy – it was pure fear – that didn’t last either)

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    Again practice drawing lines – then watching how / if the lines you’ve drawn captures the essence of price’s action

    Remember… Price will never respect your lines, (price does not know your lines even exist) – your job is to draw lines that capture price’s behavior

    ================================================================


    Are there any helpful material that could offer concrete explanations as to this area?



    Please reference above….

    I would also invite you to also post examples – after you’ve practiced – and we can discuss


    Lines are only one part of the tools you’ll need – but they are an important part as they will provide you specific context in an environment totally devoid of context (save for the context of buying and selling of course)

    btw the other tools I’m referring too are not necessarily “indicators” – that is totally your call whether you use indicators or not

    You may decide to forgo indicators and use price – so then the next step would be to learn how to read price… then possibly add volume and learn how to read it…

    The choices of what to place on your chart is endless – and completely yours

    Part 2 to follow…
     
  7. Redneck

    Redneck

    Lastly, out of curiosity, what are the factors from this chart that deter you away from investing in this stock?

    Part 2


    Several ways to answer this question

    Let me say I run seperate investment account, swing account, and day trading account


    I enter positions with my investment account based largely on FA, and the philosophy – buy stuff that are must haves (food/ gold/ silver/ energy)…
    (aside unfortunately I think one day water will also fall into this category)

    Anyway

    Banks do not fall into this category

    I also enter investment positions thinking long term – so I don’t want to have to deal with them frequently (a set and forget philosophy if you will)

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    On the flip side…

    I day trade purely on PA…

    I don’t give a crap about FA…, if what I’m trading is a necessity…, or anything else for that matter – my only focus is what price is doing that day

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    So let’s separate what you have and analyze from a FA stand point, then a PA stand point


    Is China’s economy doing good – yes somewhat - but…

    And granted the data coming out of China is not always 100% reliable – but near as I can determine – China;

    Is doing a lot of infrastructure improvements, but not a lot of manufacturing (even though recent reports contradict this - we'll see)

    Is trying to make a play on rare earth metals and some AG

    Their currency valuation is tenuous – and contentious

    May or may not attempt a run on the dollar,

    Holds a lot of US debt


    On a different note

    Potential conflict may be looming – and China may or may not be involved in some way (this is looking a little further out)


    All that said – there is nothing compelling me to invest in BOC at this time…


    ============================================================================================

    Now from a PA view of your chart

    Price is in a range (the very last 8 bars or so) – and until it breaks one way or the other – with some conviction and possibly a pullback test that holds – I’m sitting on my hands



    So either way Sir I’m on the sidelines with this one for now

    RN