This setup was shared by a fellow slacker based on discussion of ascending triangle in Newton Session. Here is what is wrong –
We need to see volume activity for confirmation of accumulation
Q. What can we predict with this setup, which side breakout possible is it downside
A. Correct, Breakout can be a downside too; that’s why there is a stop loss but trading is always about a bet and it’s about winning a series of such bet. Our work is to maximize the number of profits (not winnings)
Ascending Triangle is a bullish formation that usually forms in an uptrend as a continuation pattern.
Axis bank is not in an uptrend! That’s makes it a risk setup. Let’s judge it more clearly, now in the below, picture swing lows and swing highs have been spotted.
The continuation of uptrend got broken due to a hefty gap down which is a fundamental aspect to consider but it is so far following our support line well.
There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns.
Let’s zoom out –
You see it is the second case I referred above. So,
- Fear of hitting stop loss
- Fear of consolidation
First one is unavoidable to respect our risk management setup. Second one can be solved using an option sell leveraging theta decay. As it is consolidating we are not much tensed with Beta. However, refer this –
Here is a still image of above interactive media –
This is an amazing example of a false breakout! – Bull Trap
So here is my trade setup for now –
Bet: Breakout of Ascending Triangle
Safe Setup: One can put the ‘closing basis stop loss’ 3 points from the low of last swing low candle.
Normal Setup: Already mentioned
Option Setup: One can sell Axis Bank 480 PE
Hedge Setup: One can buy 1 lot of Axis Futures and buy 1 lot of Axis Bank 480 PE
Meanwhile, please do check this setup of HDFC Bank where failed case of Ascending Triangle is registered. This is a failed breakout which again zoomed on confirmation.
So, our stop loss is not hit in this case though but it was a worthy consolidation.
Also, we can change any setup to safe setup betting on its consolidation and option decay. This is a trade setup spotted in TradingView –
But buying futures in a high beta stock like PC Jewellers will generate series of mini heart attacks. What about selling 400 PE?
Here is what happened next – It zoomed upside breaking 550 and making 400 fully valueless.
This discussion happened on 11th June 2017 on Unofficed Chat.