The Failure of a Triangle

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 2

This is the first in what will be a series of posts highlighting stocks that have failed from bullish patterns and will be categorized under “When Good Charts Go Bad”. It’s important to study the chart patterns that fail so that we can avoid purchasing the stock or get out before getting burned. Today’s look is at a bullish symmetrical triangle formation that formed after a successful breakout from a flat base several weeks earlier. Often cited as a continuation pattern, the triangle formation presents a brief pause after a significant run up, before breaking out to additional gains. (as always, click the image below for a larger view)

In this particular case, Team Inc. caught my attention as a well formed triangle formation and I watched it closely for a break above the upper portion of the triangle with heavy volume. It never happened. Eventually, the stock broke below the support level of the lower portion of the triangle with heavy selling volume. However, no loss occurred because no buy signal was presented. This is a great example of why it is important to look for a breakout above resistance with large buying volume. Without the wind at your back, your chances at success will diminish significantly.

Filed under Stock Charts by Tate Dwinnell

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Comments on The Failure of a Triangle »

March 24, 2005

Giorgio @ 12:13 am

TMI did brake out but after a pullback, or shakeout.

Tate @ 12:38 pm

HI Giorgio,

You’re right, the stock managed to recover quickly after the shakeout and stage a nice run. It’s a good reminder to keep watching a stock after a shakeout and break of the pattern. I have a tendendy to write a stock off if the pattern breaks, but there are times when one last nasty shakeout can be the beginning of a nice run, which was the case here. However, there are so many opportunities out there I look to stick to pattern of predictability. I think that kind of action is a real precursor to future action and the kind of stock I like to avoid. Volatile moves like that are generally an indication that the stock will move like that in the future. The fact that it’s thinly trades doesn’t help. Nice again on Monday though! This isn’t a stock i’m currently following due to a couple of poor quarters in a row.. and estimates for ’05 aren’t good. Someone likes the future prospects though!