BHIivb16QnWevSIeV1UqOEn8DWU Low Risk High Reward Penny Stock Charts: How to trade the ascending triangle (PLUG)



Sunday, July 28, 2013

How to trade the ascending triangle (PLUG)

Good Morning Traders,

I'd like to take a few moments to explain the trade I entered on PLUG to illustrate the low risk setup. 

There are many types of traders out there with many different education levels.  This point really hit home with me while surfing Socktwitsdotcom last week.  There was an individual asking everyone's opinion on buying more PLUG.  He claimed to be in at $.48 with 2000 shares.  He bought the top of the last rally and is underwater almost 12%. 

This question tells me several things:

1)  He had no plan to enter this trade and rushed in when it was running.

2)  He is having serious doubts because the market is moving against him.

3)  He risked almost $1000 to enter a trade he had no understanding of.

I responded that it was a low risk trade to average down.  I wrote "I would add here. Set your stop loss just south of the 50-day average. Volume is drying, but someone has been buying all day."  To which he replied "my current average is .47, were about on the 50 EMA now. Would like to at least break even." 

This guy has no idea what he is doing.  We are swimming in a sea of sharks in the market folks.  Make no mistake.  We can swim among them and even get small morsels that are left over with a good plan.  Without one we will be consumed and left for dead.  The person looking for advice is so consumed with his own problem of what to do that he does not even see the indicators in the water.  How long before he is eaten is only a question of how much money he tries to lose.

Notice the two support/resistance lines I have drawn on the chart above.  The white horizontal line about $.40 and the sloped line rising to meet the horizontal one.  These two lines represent the trendlines of the chart.  As you can see the lines converge and we will run out of room.  One of these two lines will continue to represent the current trend line while the other will be broken.  The price action is as simple as that.  Will the horizontal line continue to hold the stock price down, or will the sloped line continue to carry the price upward. 

The Ascending triangle is known as a continuation pattern.  Simply stated it usually continues the trend it was originally on prior to the formation.  In this case a Bullish trend.  In order to take the lowest risk trade possible (assuming long position) one would purchase his shares as close as possible to the ascending trend line.  The moment you know to exit is when the price closes below the line for the day.  Notice the price action may go above or below the trend lines, but never closes at this price.  Get too close with your stop loss and you may get stopped out of a winning trade.

Best of luck trading,


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