Profit from Penny Stock Trading with the “Ascending Triangle”…

Whether you’re a trading pro or a newcomer, understanding which technical patterns to trust and which to trash can mean the difference between awesome profits and staggering losses. And with all the noise in the technical analysis world – like courses and books proffering mountains of patterns with wacky names and even wackier behavior – it’s hard to tell which technical setups are worth watching and which aren’t worth bothering with.

With that in mind, I wanted to shed some light on the ascending triangle pattern today – one of my favorite long-side setups…

First though, some background for readers who aren’t technically inclined. Technical analysis uses a stock’s price chart to determine future price movements. Technical traders, also known as chartists, do that by looking at patterns forming in a stock’s price chart and by comparing where the stock’s price action sits compared to technical indicators like moving averages and resistance levels.

Another aspect of technical analysis is patterns. When special patterns form in shares of a particular stock, they can signal certain moves to traders ahead of time. We’ll be talking about one of those patterns today.

Understanding the Ascending Triangle

Simply put, the ascending triangle is one of my favorite patterns for predicting that a stock is headed up in the short-term. That’s because not only is the ascending triangle easy to spot, it’s also a pattern with few false positives.

So, what does it look like?

Ascending triangles are characterized by a set resistance level coupled with higher lows for a stock. Basically, that means that you’ll want to be on the lookout for a price level that a stock keeps bouncing down off of and an uptrending support line.

A good example of the ascending triangle pattern is the chart of R.G. Barry Corp. (NASDAQ: DFZ) below. In this case, the stock continually bounced off resistance right above $9 per share as the lows became higher and higher:

In R.G. Barry’s case, the ascending triangle gave us advanced warning for the gap up that eventually lead to gains. Like most patterns, however, keep in mind that the ascending triangle can be susceptible to failing. As such, you never want to make a trade off of an ascending triangle until the share price actually pushes above resistance.

A More Recent Trade

An ascending triangle was the basis of a bet I recommended to my Penny Momentum Trader readers last week. We took on shares of a small-cap investment management firm as it broke above resistance, and rallied exactly as predicted. (Note: I’ve redacted the name – this stock is too tiny for all 400,000 Sleuth readers to get in on. So, I’ve had to limit it to my Penny Momentum Trader beta testers…)

Have a look at how this pattern is playing out right now:

After just a week, we’ve already seen this stock rally pretty significantly just by betting on one predictable pattern. While shares are consolidating right now, I believe that this stock has further to go before we exit the position.

Finding Your Own Triangle Plays…

There are still plenty of ascending triangle plays out there – and plenty of chances to trade to trade them profitably. Find an ascending triangle penny play you believe could break out soon? Join in the discussion by posting it in the comments below this article…

Next week, I’ll fill you in on another technical trade pattern… Until then, happy trading.

Sincerely,
Jonas Elmerraji
Managing Editor, Penny Sleuth

September 22, 2010

Profit from Penny Stock Trading with the “Ascending Triangle”… was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

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