Potash (POT) recently completed a Price Projection Target move out of an ideal symmetrical triangle pattern that I wanted to show you as an example.  Let’s see it on the daily chart.

POT (Potash) Daily:

What I’ve drawn is a symmetrical triangle that formed off the December 2008 lows.  There were a couple other nuanced ways to draw the triangle, but these trendlines suffice.

We formed a contraction period throughout all of 2009 so far and in May, price broke upwards out of the consolidating trendlines to form an initial buy-point.

What I love about this example is that it showed how it’s often a better idea to wait for a pullback to the trendline before buying – depending on your risk-tolerance.

Notice the hammer candle that formed and the increase in volume that came in after the initial break, adding greater odds to a successful trade set-up.

What I want to highlight is the “Price Projection” or price target you can set to trade off this formation.  Classic Technical Analysis teaches that you draw from the high of the triangle to the low to get the “height” (purple line).

From this, once a confirmed breakout occurs, you simply drag a ‘measured’ or equal move up, added to the top of the trendline and the upper price becomes your target to play for.

Your stop-loss would be around $80 or just below the lower trend-line.  This obviously was a successful trade that lasted almost a full month.

A negative momentum divergence has since formed and volume has clearly trailed off after a breakout.

Price could form support at the rising 20 or 50 day EMA, but the ‘easy money’ may have already been made.  We’re in another ‘pause’ or pullback, waiting for bulls or bears to display strength here.

As always, the more we see these patterns, the better we’ll be able to trade them as they occur in real-time.

Corey Rosenbloom, CMT
Afraid to Trade.com

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