Price Projection Lesson in Potash POT
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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any input on EW counts.
Thanks for the perspective and in reinforcing the many alternate methods which offer insight and an edge.
Assuming an entry there, does the trendline also function as your target stop loss?
In this scenerio, if price had broken down below the trend line, would this price projection have been applied from the point of the trendline break downward?
Also, have you noticed whether price projections align with fibonacci retracement grids, seeing an overlap at a key retracement level?
Oh goodness – we're coming off a bottom formation and can count 5-waves down on the dailies so it could be a first wave up. We might even be ending a fractal 3rd wave and are in the fractal 4th (waiting for 5th) of larger 3rd. I'd have to take a closer look and do some backwork on this one.
Thanks Bob!
Yes, if entering on either upside break, then lower trendline – and also in this case the 20 and 50 EMAs (depending on risk-tolerance) could serve as confluence stops. If you're trading a pattern, it's best to use the pattern itself as a stop.
Yes – if a down-break would have occurred, we would have subtracted the move instead of adding it.
You could – I like to but I don't discuss everything I see on the blog – I'm often trying to teach one or two concepts, showing how they connect, and sending you on your way armed with new knowledge to do your own research – and I encourage comments so readers can learn from each other!
Oh goodness – we're coming off a bottom formation and can count 5-waves down on the dailies so it could be a first wave up. We might even be ending a fractal 3rd wave and are in the fractal 4th (waiting for 5th) of larger 3rd. I'd have to take a closer look and do some backwork on this one.
Thanks Bob!
Yes, if entering on either upside break, then lower trendline – and also in this case the 20 and 50 EMAs (depending on risk-tolerance) could serve as confluence stops. If you're trading a pattern, it's best to use the pattern itself as a stop.
Yes – if a down-break would have occurred, we would have subtracted the move instead of adding it.
You could – I like to but I don't discuss everything I see on the blog – I'm often trying to teach one or two concepts, showing how they connect, and sending you on your way armed with new knowledge to do your own research – and I encourage comments so readers can learn from each other!