Time Warner Triangle Break Out Trading Plan

2 thg 7, 2015

Hi all!

This Trading Plan is about capturing the potential bullish breakout move of an Ascending Triangle Pattern.
The Ascending Triangle Pattern occurs when price is continuously trending higher against a flat resistance level. This leads to an accumulation of buying pressure as bears keeps holding the resistance line, against bulls which are aggressively buying at higher price levels. As a result, a strong price breakout will occur the moment bears can no longer hold the resistance level.

Here is the concept applied to Time Warner (TWX):

1 Price for TWX has been trading in a general uptrend from 2012, with price trading from $36.00 to around $88.00 on March 2015.

2 From Jan 2015 to June 2015, we observed support buying at higher and higher prices, along a clear uptrend line. However on the top side, price was well resisted at around $88.00 levels during this period.

3 On 29 June 2015 was a bearish day price dropped from $88.50 to close at around $86.53. However price gapped higher on 30 June 2015 and managed to close at $87.39. This indicates that $86.50 might be the next possible higher support level, from which bullish traders will launch the final push to breakout above the resistance level of $88.00

Projection: We project that the accumulation of buying pressure will continue and a breakout of the Ascending Triangle is likely to occur soon, to continue the prevailing bullish trend.

Long Entry Condition:
Only when BOTH conditions A) AND B), listed below, are TRUE:
A) If price is does not do a daily close below the blue uptrend line at point 2.
B) Price can convincingly close a day above $88.50.


Initial Stop Loss:
Below $85.50 OR when price does a daily close below the blue uptrend line at point 2.

The reason for this trade is to capture the bullish breakout of an Ascending Triangle pattern.
Therefore, if price closes below $85.50 or fail to maintain the bullish trend line, it means that the breakout has failed and there are no more reasons left to maintain a long position.

Shifting of Stop Loss after entry:
If price manages to close above $90.00 after entry, we can consider shifting the stop loss lower to $88.50.
Rationale is that if price is genuinely breaking out below, it should show a clean strong move up towards $98.00 and above.

Therefore this shifting of stop loss is a conservative approach to protect risk capital.

Taking Profit: $98.00 or when price closes below blue trend line at point 2.
The theoretical measured target for an Ascending Triangle is around $98.

Risk:
There is a risk that the breakout move is a bull trap and fail.
There is also the risk of Earnings Release on 05 Aug 2015 will drive prices lower.

Flipping Around to Short if Long Squeezed:
In the event the stop loss conditions are triggered, it will mean that the Ascending Triangle pattern has failed and loss has been incurred.

It is also likely that this failed pattern will lead to a long squeeze move with enough momentum to push prices towards $82.50 and even lower.
Therefore more advanced traders may consider turning around and go short when the stop loss conditions are triggered, to capture this long squeeze momentum.

Reference:
Ascending Triangle 1> stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:ascending_triangle_continuation
Ascending Triangle 2> thepatternsite.com/at.html

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