V. 20:4 (38-43): Post-Breakout Patterns by David Penn

Post-Breakout Patterns by David Penn

Look for these patterns to determine if breakouts continue.

I n technical analysis, one of the benefits of focusing on chart patterns is that practice trains the eye to spot emerging chart patterns. This may enable a trader to take a position before an actual breakout occurs, thus increasing the profitability of a correct call. When chart patterns occur as part of an observable trend, the breakout (or breakdown, in the bearish case) can become a place to add to a position, or to place a protective stop.

One of the biggest benefits to traders who study chart patterns is their increased possibility of finding patterns in bunches. Too often, a single chart pattern becomes the beginning and ending of the discovery, when continued observation might lead to uncovering another chart pattern emerging from the breakout or breakdown. While patterns after patterns are not typical, keeping an eye on what prices are doing even during a successful break can at times lead to even greater rewards than treating each chart pattern on an individual — and isolated — basis.