The Trend Continuation - Ascending Triangle

The Trend Continuation - Ascending Triangle

My observation of an ascending right angle triangle is technically confirmed when you assess the following: This is where we have a rally to form a latest high, this is so followed by a decline back down to the intermediate support level. We then have a second rally to retest the first new high. There is then a second decline but not falling as far as the previous decline, this fall does not reach the intermediate support level. We then break out to rally to new fresh highs on solid volume.

This structure broadly takes place after a share has had a strong ascent to a new high commonly since of some generally positive and fundamental expansion. Experienced investors are of the opinion that the share price should be higher under the new improved fundamental outlook. The traders who have bought earlier at lower prices are gearing up to sell off their positions, Applying chief metrics they generally set a share price at which they are happy to divest their investment and then just wait for the distribution process to unfold. In this situation fair value is not considered.

Generally the process of distribution unfolds after only one specific and bullish development. The share price rapidly advances to a new high. The research analysts and media establish sprouting buy recommendations and upright news stories about the stock. The smart money seizes the opportunity to take their profits or liquidate their positions, (1st new high). It creates a minute top. The traders observe good supply at the new high. The share price begins to waver. Before long the price has fallen to its previous intermediate support level. This low is termed "reaction low" due to the way the shared price reacted to the recent new high. Some assume that an ascending right angle triangle is similar to double and triple tops; rising demand that's meets well established supply.

Commonly, the implied fundamental information available to traders is so robust, the traders simply ignore the weakness as profit taking, thus a new rally commences. The firm volume causes the share price to rise towards the previous high. As the share price hits the previous high it again is sold down (top 2). At this point some opportunists recognize a pattern or trend. They start to build short positions just below the recent high, usually this additional selling pressure would cause the stock price to fall rapidly but the positive reaction to the share is overwhelming. While the stock only slightly falls it does not reach the reaction lows that were set after the recent new time high.

After a short period of time - normally only days, positive revelations or developments occur and the share increases in cost on very strong volume. The opportunists begin to add to their short positions but due to the experienced traders and investors who are buying into the stock, there is a limited amount of stock, this raising the share price.

At this point the share price breaks through the resistance level and then panic by the opportunists causes them to cover their short positions. This causes a synthetic demand for the stock at a time when the supply is quite low. Due to the bullish sentiment and underlying background, this leads to a stunning price increase on strong and solid volume.

Briefly later the breakout, the research analysts report to the market along with the media. This distorts the imbalance further and with high demand and low supply. The share price over the coming weeks rages higher to a new high. On this rare occasion the experienced traders are overwhelmed by the bullish sentiment and it is at this point that the resistance level now becomes an important level of support.

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