By Christopher Diodato – Tradersbase.com
Back when Thomas Bulkowski did his massive studies on price patterns in the equity markets, he found that a descending triangle, a traditionally bearish pattern, was extremely dependable and profitable if it broke out to the upside. 84% of the breakouts hit their price target, so these types of breakouts are certainly worth taking advantage of when they occur.
The breakout occurred two days ago, but the risk/reward ratios are still favorable toward taking a trade. The standard risk/reward is 3.5 (borderline), but after adjusting for probability, it becomes 18.38 (very good!). The method of executing the trade is outlined in this video below. Go to the link below to view.
Here’s another thing that will work in our favor in this trade, and may give us a clue to the long term performance of this stock. Take a look at the point and figure chart, a chart made to filter out noise and time distortions.
The patterns outlined in this chart give us two targets. The first, 40, was my intermediate term target, but there is also a target at 49, which is dedicated to the long term. Needless to say, the bull is in control. There was also a recent buy signal.
If you want to know more about point and figure analysis, I highly recommend looking into the brilliant work of Jeremy Du Plessis. Remember, the trading strategy is outlined in the video. Happy trading ~Christopher Diodato