Combining a technical indicator with another technical method can be the start of a viable trading system. Here's how to combine a technical indicator with a chart pattern to form one.
Pattern recognition and trend-following
can be combined to form a
useful trading system. The particular
pattern being reviewed is
the triangle chart pattern, while
the trend indicator is the 20-day
exponential moving average
(EMA). Both techniques can be
used as a basis for an entry rule for
trading opportunities. For an exit
rule, we will rely on a trailing stop
based on the parabolic indicator.
With that in mind, letís take a look at each of the methods
individually and then determine how to use the techniques together.
The symmetrical triangle consists of two converging
trendlines, with the upper or resistance line falling and the
lower or support line rising. The point of intersection at the
right where the two trendlines meet is referred to as the apex.
The triangle is called symmetrical when the angle of both
trendlines with reference to the apex is approximately equal.
The minimum requirement for a triangle is four reversal
points. It takes at least two points to draw a trendline, and in
order to draw two converging trendlines, each line must be
touched at least twice by the price action.