AKS: Gap Up And Descending Triangle

From last Tuesday, on AKS:

"Although 16.88 was IN PLAY from The Rectangle breakout (16.15 - 15.42 = 0.73 pts. + 16.15 = Target: 16.88), I took profits on AKS on Monday when the SPX got to 893 neckline resistance."

AKS has been on fire since then. It gapped up yesterday morning from Friday's 19.99 close, to 20.65. Despite the wicked short squeeze in the market since last week, those common gaps often get a 50% retracement of the gap after an early session rally, so I decided to take a walk on the dark side and short it when it came off its early high of 21.07. The target for a 50% gap retracement was 20.32.

I placed my order at 21.04, but only got a partial fill of 1,000 shares. Curses! My 21.04 turned out to be the secondary high, and also the high for the remainder of the session.

My entry was the first white arrow. The second white arrow was a trendline validation, so I moved my mental stop down to there, to lock in a winning trade. Especially in a market that has been experiencing a vicious short squeeze, we don't want to tarry if a validated trendline gets taken out to the upside.

As trading progressed, we can see that a nice little Descending Triangle formed. The high was 21.07. The "flatish" bottom was perfectly flat: identical lows of 20.50. The majority of those patterns are bearish, so a short trade looked favorable when the pattern broke down, putting a downside target of 19.93 IN PLAY.

21.07 - High of the pattern
20.50 - identical lows

21.07 - 0.57 = Target: 19.93 IN PLAY

I covered my short just above my original 20.32 target, the 50% retracement of the opening gap. If I had gotten filled on my entire order, I would have held some for the 19.93 target IN PLAY, but I would have covered that portion just above Friday's 19.99 close in the low 20.00's, in case it was a just a gap fill, or near-gap fill.

As it played out, the 19.93 target did get MADE. The session low was three pennies below the target, at 19.90.

Especially in a bullish trend, and the trend is bullish, we want to be careful that a Descending Triangle doesn't "morph" (change) into a Bull Flag, or a Falling Wedge, as in this example. That was another reason that I covered near the 20.32 target.

What can be deadly about a "morph," as in this example, is when the 20.50 Double lows get taken down, we're lulled into thinking that we're safe in our short position since support just got broken, but the stock makes only a nominal new low, then "morphs" and takes off to the upside. Again, if I had gotten filled on the entire 2,500 shares, I could take some profits at the first target of 20.32, then been able to defend against a pattern "morph" on the remaining shares, and still come out of it with a gain. I would have covered a breakout above Trendline #1-#3.

With only 1,000 shares, I "took the money when my target got MADE."

Gain: $675.