Back on 23 August I posted a set up that involved buying eBay on a test of the major triangle support. Price has now risen to the pattern resistance. This suggests its time for those already in the trade to protect some profit and for breakout traders following the classic triangle continuation strategy to think about stop entry orders.
eBay Triangle Pattern Set Up
You can read details of the triangle pattern set up in the original post
I've outlined the basic pattern in the weekly chart below
The following things suggest this chart might be primed for a break through the triangle resistance and a continuation of the uptrend leading into the pattern:
- Price has so far completed 5 touches of the pattern borders (ABCDE). A break out often follows.
- The slow stochastic in the box below the chart is trending strongly higher but still in mid range. This suggests scope for the uptrend to go on with the job from here
The zoomed in daily chart below, outlines how the original buy might have panned out. One of the alternatives I discussed in the first post was the classic flick under the support line that often occurs on the 3rd touch (E).
The buy shown on the chart assumes entering on the first close above the candle that forms the low of this classic flick below the triangle support. The initial stop is then placed just under that candle.
One typical strategy might be to take profit on part or all of the trade on at the triangle resistance.
However, given the potential for this to be a continuation pattern, I'm treating the buy as an early entry on a possible break out to the upside.
Even so, hitting, the resistance line (or very close to it like we have) represents a potential warning that price will stay inside the triangle and not break out as we are hoping.
One strategy for this situation is to move the stop up just under the candle that hits the resistance. That way you can take a profit if the trend peaks at the resistance but get back in (hopefully not much higher) if price does actually go onto break out
This is one of those cases where the candle that fell just short of the resistance was large. This means the stop is a long way under the resistance.
As the 200 day moving average is not far under that candle low, the stop could be placed behind the sma to allow some extra width for price to make a partial pull back into pattern from here.
Triangle Pattern Breakout
If the rally continues from here, a typical entry strategy for break out traders who are not already in the trade would be to place a stop entry buy order above the resistance. Some may use a price filter e.g. 70c to wait for the market to get well above the resistance and reduce the risk of false breaks.