Welcome To The Delphi Energy HUB AGORACOM

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Message: Patterns within Patterns

As a short term swing trader I'm always looking for chart patterns that forming and have good breakout potential. The problem is that I don't want to wait staring at a screen all day going over the 20 or 30 stocks I have in my watch list checking if they're about to breakout. What's the solution? Let them come to you... QuoteTracker has an alert system that can notify you by a popup window on your computer or even send you an email when the breakout condition occurs. Here's an article I just wrote about my recent successful trade with Delphi Energy.

Enjoy the read!

Link to article is: http://www.ta-picks.com/Successful/DEE_Apr21_Success.html



Chart and Technical Setup

Patterns within patterns. In my January 10th Weekly Picks Newsletter, I mentioned that Delphi Energy was forming a long term Cup & Handle pattern and it was not quite ready yet as indicators were in the "Not Sure" zone, an area where there's no clear direction to the price movement. The chart I included was a daily chart and should really have been a weekly chart as this is a 15 to 20 week target. The breakout week was the week of February 14th with weekly volume nearing 10 million shares (3 times the previous week's average) confirming the Cup & Handle breakout. There's an excellent write up on StockCharts of what a Cup & Handle is here.

So we have a high target of $4.50 on Delphi as an intermediate to long term play, but what about shorter term plays? Swing traders who don't want to wait that long to realize some gains in the shorter timeframe. Those traders need to look for patterns and formation on a Daily chart and see what emerges from the longer term charts. We know out long term goal is $4.50 on Delphi and it's bound to have some pullbacks as it move upwards to that target and we use these pullbacks to average down our cost per share by selling a portion of our position as it starts to pull and buying them back at a lower cost. So we start to look for patterns within pattern.

If we look at a daily chart of Delphi we can see the increase in volume the week of February 14th but we don't really see the price move up, it stays around our support line for another week or so. The breakout on the daily chart occurred several week later when it made its move from $2.20 to $2.62 in six short days before posting a red candle. This is the point where we start to look patterns on the daily chart and start to sell some trader shares. By March 1st we had out three touch point to draw our upper down trend line then copy that line lower to create out down trend channel.

This sure looked like a Bull Flag. These are the characteristics of a Bull Flag; It is a continuation pattern that usually occurs after a large run up in price forming the 'Pole' portion of the Bull Flag and consolidates for about 2 week with lower highs. Bull Flag generally breakout on high volume within 12 days of posting the top of the flag. Formations taking longer than this generally resolve into Symmetrical Triangles.

There's better things to do during the day than to watch non-stop for a formation to breakout, this could take days! Luckily for us swing traders, QuoteTracker gives us the ability to set trend line alerts. A trend line alert is a line you draw on an intraday chart and you tell QuoteTracker to notify you (by either a popup window on your computer or by sending you an email) that the price has either moved above or below the trend line. Our trend line was drawn from the peak of the action on March 24th to the peak of the action on April 1st. This gave us our upper trend line of the Bull Flag formation we thought was being formed. The alert was set to notify us when the price moved above that trend line. We then closed our chart and forgot about Delphi Energy for a while.

On April 12th, we received our notification that Delphi's price had moved above the trend line and looked at both the daily chart and our intraday chart. The alert was triggered at $2.43 and there wasn't much volume at that time. It was mentioned it to our members in our Chat Room that an alert had been triggered with a possible Bull Flag breakout. Intraday resistance was also at $2.43 and as the price inched higher, this resistance line clearly became support.

It wasn't long afterwards that we saw volume building and it seemed like the right time to take an entry in Delphi. $2.45 was our entry price with a target of $2.93 based on the calculations for a Bull Flag breakout for possible gains of 19.5% in hopefully 5 to 10 days. A good short term swing trade.

Delphi Weekly Chart

Delphi Daily Chart

Delphi Intraday Chart
End Result

On April 15th I closed the position at $2.70 as that morning it opened with a gap and by 10:15 am (after the morning caffeine rush) it had formed resistance at $2.70 and didn't look as if it was going to go much higher. There's a theory that gaps, either up or down, always get closed at one point or another. It could take a few days to months and years to close, but they always get closed. The close the previous day was at $2.56 which represented 5.1% drop in share price but also represented 50% loss from the 10.2% gains I had already made in 3 days. If it does pull, I can always buy back as it closes the gap if the chart still makes sense.

The following day it did close the gap with a low of $2.57 (two cents below the previous day's high) and then continued its move up. I didn't buy back at that time but should have. I was happy with my gains and Delphi was no longer on my mind. There were other plays that were triggering alerts in QuoteTracker and needed my attention but it looks like Delphi Energy will be hitting that $2.93 target I had set for it!

TA-Picks offers a FREE Weekly Technical Newsletter that contains some of our technical picks for the upcoming week. The newsletter has the stock's chart along with an entry point, expected target(s), stop loss point and we describe what the technical setup is and provide some commentary as to why we think this stock will move. The newsletter is delivered to your email address before the beginning of each trading week. Subscribe today and start your trading week off on a good foot!

Think you're ready to take your trading skills to the next level? We also offer educational material and courses. Our Fundamentals of Technical Analysis course is the perfect started point for new comers to the field of Technical Analysis as well as being a good refresher course for those who already have a basic understanding of it. Technical Analysis and its Application is a more advanced course that brings your understanding of how to read and interpret charts to new heights by introducing techniques to correctly identify charts patterns, price movements and technical indicators that when combined together will provide you with good entry and exit points for the perfect trade.

You can also look at our Chart Pattern Flash Cards as an aid in helping you identify chart patterns and how to trade them. These are the cards I use on a daily / weekly basis when doing my scans to quickly spot patterns and to write my newsletter.

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