Analyzing a Chart

When analyzing a chart the first thing a new trader should determine is, whether the chart is trending or basing. Basing Patterns come in many forms. The chart at the bottom is an
ascending triangle, where the triangle constitutes the consolidation or base from which the stock can breakout.

How does the stock breakout? Ultimately, investors and traders buy and sell the stock until some catalyst creates enough energy to push the stock higher or lower from the base.

As a new trader, one of your most important decisions, not excluding position sizing, establishing targets and risk reward is when to buy or sell.

In the chart below, the first thing I notice is whether the stock is basing or trending. I do not want to buy when the stock is basing for the most part, rather I try to time the first "scale in" (a partial purchase of shares or options) with the initial breakout or breakdown. I use stochastic and other momentum indicators to assist in timing.

In the Micron chart below, middle of the chart, the rectangle is one form of base, also called a flat base, followed by a period of trending. I want to be in, when the stock is trending, not when it is basing, for the latter will shake a trader out of a position.

During this period of consolidation, buyers and sellers are jockeying for position, looking for the timing mechanism or catalyst for the breakout.

So the next time you're ready to buy, ask yourself. Are we in a base? Or, are we trending?

Base or Trend MU

Magenta lines denote bases being formed, with yellow lines depicting trending periods.

Base or Trend HD

Sherwin Williams creates three bases in the beginning of this weeky
Ichimoku Chart with this last base lasting 6 weeks before lifting off of the kumo for the final time. It trended from January until mid-May, a nice return if you continued to move your stops up during this trending phase.

Base or Trend SHW

Celgene bases and trends very clearly in this daily chart. Stochastic helps time the impending breakout.

BASE or TREND CELG

First Solar broke higher out of a summer base in August and promptly trended higher until reaching resistance at 26.00 (HL) For the better part of fall and early winter in 2012 it moved sideways basing and putting in higher lows without breaking higher, forming a recognizable ascending triangle pattern. It then broke out and trended higher until it encountered sellers at 33.00, a nice $7 dollar gain. Currently it is forming an ugly pattern seeking a more definable and tradable pattern.

Ascending Triangle FSLR small

Ascending Triangle with Fibonacci Extension Targets 127/161.8 overlaid

A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trend lines. In an ascending triangle, one trend line is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trend line connects a series of increasing troughs. Traders enter into long positions when the price of the asset breaks above the top resistance. The chart above is an example of an ascending triangle:

An ascending triangle is generally considered to be a continuation pattern, meaning that it is usually found amid a period of consolidation within an uptrend. Once the breakout occurs, buyers will aggressively send the price of the asset higher, usually on high volume. The most common price target is generally set to be equal to the entry price plus the vertical height of the triangle. Fibonacci levels were also overlaid on this chart using 127/161.8 extensions as targets once price broke out.
 
An
ascending triangle is the bullish counterpart of a descending triangle.
About Cousin Vinny
Cousin Vinny is the internet pseudonym for TLLeBlanc, Architect who started trading in 1987. Practicing Architecture for over 30 years, Mr. LeBlanc found the technical aspects of building, design and construction prepared him well for fundamental and technical analysis.

He is a family man, a native of New Orleans, currently residing in New Jersey.
Contact us
Vinny@theclosingprint.com
Support@theclosingprint.com


Screen Shot 2012-12-22 at 11.54.43 PM
Mission
We have a simple mission. We wish to make profitable trading and investing a core part of every "newbie" trader.

Knowledge is power and with trading, being able to act quickly, with forethought is a critical component to success.

We wish to educate new traders in the process of recognizing and executing high probability setups, entries and exits.