Roughly a week ago there was some analysis from a super active user I'll leave nameless. It was on Verge (XVG) and the crazy upside it had due to a triangle pattern.
Here's the Thing - I had no issue with the one side of analysis and agreed with it!
But that's the problem - it was only one sided.
When it comes to technical analysis and charting you must do two things:
- Layout scenarios for the upside
- Layout scenarios for the downside
Otherwise you are not doing your readers justice as they are not learning how to react to both directions.
Break down of Triangle Pattern
Above is the hourly chart of XVG with the triangle I drew back when the analysis was done.
You can see it tried to break out of the triangle to the upside. This would have gave us the possibility of a large upside move. However, it failed to follow through.
Generally when you get a breakout there will be a pullback many times that tests that descending line it broke. In this case XVG failed and re-entered the triangle.
The Break Down And Confirmation
Not long after you see price bounced off the bottom ascending line only to then fail and crack below it.
What happened next should be expected. It bounced and tested that descending line. After multiple tries it could not re-establish above and has now pushed back down to the prior low around .13 cents.
The Lesson
If you buy a breakout more than just the upside profit target needs to be known. What does one do when the price breaks down as it did.
Do you exit and take a small loss once it falls back into the triangle? Do you use the ascending line as a stop loss and only sell if it completely breaks down out of the triangle to the downside?
The answer is yes ans yes. Either one works depending on your risk profile and the risk-reward ratio you have based on whichever upside target you picked.
However, you should be aware of those and I feel like when they are not mentioned it is doing a disservice to readers. Not saying I'm never guilty of not analyzing both sides....but TA just to rah rah rah coins leaves a bad taste in my mouth.
Learn to Invest Like The Cat
Best Regards,
Disclaimer: All content in this post is my opinion and for educational purposes