Intraday Trading - Ascending Triangle April 20, 2010

While intraday trading looking to scalp quick profits, stock chart patterns will often reveal keys to potential entry and exit signals.

While no pattern or signal is bullet proof nor works ever single time, quite often you'll come across patterns that provide high probability trading opportunities time and time again.

The key as with any type of trading, is to manage your risk in each position and cut your losses short if you are wrong.

The example below displays an intraday trade that happened to work out and produced a 2.7% profit (before commissions) in less than a minutes time.

In the first chart below you'll see that prices had a large range in pre-market (the gray area), trending down, and then bouncing up to the top of the pre-market range right before the open. This was all on relatively light volume so it would have been hard to come to any definitive expectations in pre-market. Still, I like to use the pre-market trading range as key levels to watch for during the day.

Intraday Trading Ascending Triangle

You can see that once the regular market trading session opened at 9:30 a.m., prices began to drop and then started to reverse and move higher.

Around 9:35-9:36 a.m. prices had reached the pre-market session high resistance level, and pulled back a bit. Then, a second re-test of this upper level began, with prices making higher highs and higher lows between 9:38 and 9:41 a.m.

You'll see that I have added a few trend lines on the chart and notice that the price movement for the time period during this second re-test of the upper price level near $4.30 formed an intraday ascending triangle. Read more about these patterns here: Ascending Triangle

In anticipation of the triangle pattern playing out along with additional reasons below, I went long at 9:41 a.m. at $4.28. I was expecting a short burst higher on a breakout of the pattern which meant a potential for quick, small profits.

You can see on the chart that prices did indeed breakout higher within seconds of my order getting filled, and once I saw prices moving higher, I immediately placed an order to sell my position at $4.35. I got filled at $4.40. This was more than 1% better than I was expecting due to the increased volume on the breakout, selling into strength.

Overall, as I mentioned above, this trade produced a profit of 2.7% in less than a minutes time of being in the trade. Yes, prices moved up to $4.55 if I had waited 5 more minutes, but they very easily could have reversed and produced a loss. I chose to lock in the profits which is never a wrong decision.

Now let's back up a bit and see where the stock price came from in the day prior to this. Take a look at the next chart:

Intraday Trading Ascending Triangle 2 Day

You can see that prices drifted lower in the prior day and then gapped down from the previous close. So when I went long this particular stock, it was down 6+% from the day before, yet it had gapped down so I was counting on some sort of bounce and possibly short covering.

That seems to be what had happened and you'll also notice that prices went up to the area of the previous days low, and then pulled back. This happens often when prices gap one way or another. Not always, but in some cases.

In this example of intraday trading and using an ascending triangle as an entry signal, if prices had started to reverse and move lower, past $4.20 or so, then the reasoning for entering this particular trade would have been wrong, since the pattern failed, and any position should be closed out with a loss.

Since there are many different chart patterns, counting on any one in particular without being open to other possibilites is not a wise choice in my opinion. Had prices reversed after I went long, the patern could have turned into an intraday double top, and went significantly lower.




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