Goldman Sachs Triangle Throwback Trade

Jan 15, 2008: 7:55 PM CST

Goldman Sachs (GS) recently formed a consolidation coil or triangle, and recently set up a classic “throw-back” or second chance high probability entry.

Notice the absolutely clear triangle consolidation from November until early January, and the subsequent break in mid-December.

I posted previously about the triangle break as a potential opportunity to trade GS short (or sell any long position you were holding).

Triangle breaks are often susceptible to what’s known as “throw-backs” which mean that, instead of trending sharply downward at the direct break, price meanders back in a retracement swing to retest the breakout point or, more commonly, the apex or peak of the triangle that formed.

Breakouts are actually lower probability trades than throw-back trades. Throw-back trades often offer higher probability opportunities to enter a position.

Throw-backs also tell us why it’s generally unsafe to trade with ultra-conservative stops (those that are far too close to your trade entry price). A stop for the consolidation break should actually be on the opposite side of the triangle, which may be too much risk for some traders to handle.

A break at $210 should have been accompanied by a stop around $225 that decreased either as the trade moved in your favor, or with the upper declining line of the triangle pattern.

Notice how the stop is much tighter and more logical (and more conservative) than the initial break-out.

The “Throw-back” trade called for entry near $215 with a stop above $220. Initial targeting would have been the distance from the height of the triangle, or about $45 (the distance between approximately $200 to $245 or $250).

See for yourself if you would like to learn more about this trade, and potentially incorporate it into your growing trading arsenal.

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