Thursday, July 16, 2009

Low Risk Entries with MarketClub's Triangles?

In looking at strategies that give low risk entries and high rewards a question about MarketClubs's triangles came up. If following the basic use of the triangles would I be entering low risk trades? I would say the answer is yes. The simple basic use of the triangles is this: 1) the monthly triangles are your trend direction. 2) The weekly triangles are your timing for entries.
Look at the chart of RIMM below. On a weekly chart a monthly triangle occurred in July 2008 signaling a downtrend. Also, this is telling you that you are to only take shorts which are signaled by the down weekly triangles. Notice, a down weekly triangle occured in September 2008. You could have entered short at the close of that week or opening of the following week.
You could have placed your hard stop at the top of highest bar that occurred in August. If you noticed, that high point is the turning point or a swing high. Most times, the triangles are occuring at turning points. We don't expect the market to go back to the high or low of these points right away but if it does, then the triangles were wrong and we are stopped out with a small lost. If we are right, as in the case of RIMM, we have a nice profit. I think the triangles are a pretty cool tool especially if you trade direction options.

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