The Tipping Point
Here's a little trade set up on another, mostly, penny stock. NASDAQ:SPWR is bouncing off the bottom of a long-running bullish channel. Within this channel, 2 symmetric triangle patterns are in development.
Our price is closing in on the apex of the first symmetric triangle in a matter of days, and at the same time, we have developed Class A Hidden Bullish Divergence on our oscillators.
In contrast, however, if you look at the first triangle within the larger context of the potential second triangle, what it has also formed is a partial rise, or a pattern of distribution that would indicate a 70% chance that the price action will fail to hold support at the demand line and break out of the larger symmetric triangle downward. If this comes to pass, the measured move of the triangle pattern would indicate a retrace to $5.85, or a roughly 80% correction. Note, however, the chances of this occurring are mitigated by the Class A hidden bullish divergence.
If the price action recovers and breaks out to the upside of the first triangle, the measured move of that would imply it would break out upward of the second, larger symmetric triangle. The same measured move used to predict the bearish price point 'could' be pointing us to a return to a previous historical support/resistance of $65.35, though this is a bit of a projection since we don't know exactly where the price would break out (though, on symmetric triangle, the breakout occurs most often 60% of the way to its apex, which roughly lines up with where I have it plotted on this chart).
With all of the data above plotted, I've planned a total of five, count em, 5 whole take profit levels. Some of them are set just below historical support/resistances, while others are placed at fib nodes and extensions (which I don't have plotted here because it would have made the chart too chaotic to look at). Rest assured, however, they are all very informed guesses on where the price could go if this trend continues.
If the price breaks out bearishly to the downside of these triangles, however, you could expect our large 80% movement down as well ... so to give our trade a little bit of wiggle room, our stop loss will be be set to $20, just a few cents below a historical support. If it fails to hold that, then its certainly not a false break out downward, and we would be better off waiting for another opportunity. However, this large stop would require us to risk 36% of our position. This is still nearly a 3 to 1 risk/reward ratio on even our first take profit level, however. This should be unsurprising. High reward set ups on high risk trades will come with high price tags if they fail.
Our price is closing in on the apex of the first symmetric triangle in a matter of days, and at the same time, we have developed Class A Hidden Bullish Divergence on our oscillators.
In contrast, however, if you look at the first triangle within the larger context of the potential second triangle, what it has also formed is a partial rise, or a pattern of distribution that would indicate a 70% chance that the price action will fail to hold support at the demand line and break out of the larger symmetric triangle downward. If this comes to pass, the measured move of the triangle pattern would indicate a retrace to $5.85, or a roughly 80% correction. Note, however, the chances of this occurring are mitigated by the Class A hidden bullish divergence.
If the price action recovers and breaks out to the upside of the first triangle, the measured move of that would imply it would break out upward of the second, larger symmetric triangle. The same measured move used to predict the bearish price point 'could' be pointing us to a return to a previous historical support/resistance of $65.35, though this is a bit of a projection since we don't know exactly where the price would break out (though, on symmetric triangle, the breakout occurs most often 60% of the way to its apex, which roughly lines up with where I have it plotted on this chart).
With all of the data above plotted, I've planned a total of five, count em, 5 whole take profit levels. Some of them are set just below historical support/resistances, while others are placed at fib nodes and extensions (which I don't have plotted here because it would have made the chart too chaotic to look at). Rest assured, however, they are all very informed guesses on where the price could go if this trend continues.
If the price breaks out bearishly to the downside of these triangles, however, you could expect our large 80% movement down as well ... so to give our trade a little bit of wiggle room, our stop loss will be be set to $20, just a few cents below a historical support. If it fails to hold that, then its certainly not a false break out downward, and we would be better off waiting for another opportunity. However, this large stop would require us to risk 36% of our position. This is still nearly a 3 to 1 risk/reward ratio on even our first take profit level, however. This should be unsurprising. High reward set ups on high risk trades will come with high price tags if they fail.
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