|As a technical trader, I am always on the lookout for common price patterns to form on stock charts. A very common and highly probable chart pattern--an ascending triangle--has formed over the last several months on the weekly chart of EVC-Entravision Communications Corp.
An ascending triangle has a flat top line (overhead resistance) that prices keep bouncing down from, and an upward sloping lower line where prices turn back up just a little higher each time.
See the weekly chart of EVC below:
Notice how as prices drop within the pattern, buying pressure turns prices back up at higher and higher prices. Also notice that selling pressure always turns prices back down at the exact point (top horizontal line).
Ascending triangles usually form after a nice run-up in prices as was the case here where prices moved from around $1.50 to $7. After such an extensive move, a stock will typically take a "break" and move in a sideways pattern...in this case an ascending triangle, before continuing upward.
Ascending triangles can be seen in all time frames--daily, weekly, and intraday charts. In all time frames they have the same meaning. When you see these forming, you can assume with very high probability that if the stock breaks out above the horizontal line, it will continue upward at least in the near term.
Time frame does play a factor in estimating the potential move. For example, an ascending triangle on a 5 minute chart still has the same probability that it will move upward, but within the perspective of that intraday chart which may only have a moderate impact on the daily chart and may not even be noticeable on the weekly chart. Whereas, an ascending triangle on the weekly chart (as is the case here with EVC) will have a dramatic impact on the daily and intraday charts.
Understanding time frame is critical in determining how long you should hold a stock and also for estimating price moves.
Price patterns that form on the weekly chart will play themselves out over several weeks to months. Why is this the case? It is so because each candlestick in the chart is a weeks worth of price movement. So, for a pattern to complete itself on the weekly chart, it will take several to many weeks (candlesticks) to "draw" the foot prints of price on the chart.
Weekly charts should be used to evaluate the "long-term" direction of a stock (from weeks to months). Always stick to the same chart interval when placing a trade so that you buy and sell based on the same chart and time frames. This is very critical to your success as prices on the weekly chart may continue to be moving up while on the daily chart they are moving down. This seems a bit confusing, but remember prices may be up for the first part of the week and down on Thursday and Friday, but still higher than prices from last week. Just always remember, if you buy using the weekly chart, sell when the weekly chart reaches its objective (or hits your stop loss). If you buy using the daily chart, then sell using the daily chart too.
I usually purchase stocks using the weekly charts for my retirement accounts as my objective is to put retirement money into stocks that I believe will make a significant move over several weeks or months.
If your trading style is to buy and hold for weeks or months, EVC may be a good purchase for you. I have already purchased EVC for my retirement account.
If you have any questions or comments you would like to share, please offer your insight to help others hone their trading skills.