ROCM: Descending Triangle

(Click On Chart To Enlarge)

When trying to identify chart patterns, start at a high or a low, and label that #1. In this case, we're starting at the high of 19.98.

At the next low, label that #2.

At the next high, label that #3.

At the next low, label that #4.

Now we can see that we've got a Descending Triangle, and we can study about that at Chart School (link at the bottom). As I said to Doug, "Practice...practice...practice," and it's good to practice with stocks that we are playing because "it's real," and we likely will remember that better than some sample chart.

Okay, once we have the pattern, let's see if we get a breakout, or a breakdown. Descending Triangles "tend" to be bearish (the opposite for Ascending Triangles), but there's no "always" about it. Just be aware of the tendency, and watch it.

After the Descending Triangle finished forming at #4, what happened? RCOM rallied back to the top of the pattern. What happened? It FAILED, right there.

That's called VALIDATED RESISTANCE.

The market said, "Yes, that down trendline that you've drawn is important. That's resistance, alright! Now, if it gets taken out to the upside, that has added importance because the stock will have taken out "validated resistance."

If, however, RCOM breaks down below the bottom of the Decending Triangle pattern, 17.05-17.07 support, that's a pattern breakdown, so it's a sell and/or sell short. No guarantees EVER with any pattern. A breakdown "could be" a Bear Trap, but over time, I find it best to take breakdowns and breakouts seriously, and sell or buy them.

To establish a target for any pattern, take the high minus the low, then subtract your answer from the breakdown or breakout.

19.96 - High

17.07 - (the more consevative of the 17.07 and 17.05 lows)

19.96 - 17.07 = 2.89 points

If RCOM breaks down, 14.18 would be IN PLAY.

If RCOM breaks out above 17.75 (validated resistance at the arrow), 20.64 would be IN PLAY.

Try to learn these patterns at chart school, and then practice...practice...practice identifying patterns, and establishing targets.

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis