Friday, August 19, 2011
Large Triangle Breakouts
I have previously written about trading Triangle Breakouts. In general triangles break in the direction of the most recent trend (b13-b26). The optimal entry point is usually hard to determine since the actual breakout often has no signal bar. The correct way to enter is to wait for a clear breakout outside the triangle (below b26) or at least the last two swing points (below b35) and enter on the first pullback. On this day, it would be below b55. However, when the day is one with large bars, an earlier entry may provide larger profits.
One optimization is to enter in the direction of the previous trend on any signal bar that may be a failure such as below b45 (b45 was 5tf of buys above b44) or below b47 (failure of reversal bar). The only reason this is acceptable is because failures usually lead to at least two legs and if the trade does not pan out, you should be at least able to exit at breakeven.