Getting Technical: Ascending Triangles

Ascending triangles are bullish patterns, usually seen in an uptrend as a continuation pattern, recognized by its unique shape formed with two trend lines: the resistance line is drawn horizontally at a level that has prevented the price from going higher while the supporting trend line connects a series of higher lows. In a downtrend, these right-angle triangles can form a reversal pattern. A common target price can be based on the height of the triangle.

ADAPTED OPTION STRATEGY: BULL CALL SPREAD

As the upside potential is limited by the 351.75 resistance level, a bull spread allows you to lower the cost of the strategy (in comparison to a straight long call) by selling a call out of the money. As a result, the strategy consists of the simultaneous purchase of a call with a Strike at 330 and selling a call with a Strike at 350 (measured move of the ascending triangle pattern).

BULL CALL SPREAD: Leg 1

Trading Symbol ZM2J7
Option Type CALL
Option Strategy BUY
Strike 330.000
Expiration Apr 2017

BULL CALL SPREAD: Leg 2

Trading Symbol ZM2J7
Option Type CALL
Option Strategy SELL
Strike 350.000
Expiration Apr 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol ZM K7
Strategy LONG
Entry Point 333.400
Target 351.750
Stop Loss 311.250
Contract Expiry May 2017

ASCENDING TRIANGLES: ZM K7 JANUARY 13TH

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 351.75 is calculated by anticipating a measured move between the triangle’s low and high and then projecting this range to the upside from where Soybean Meal broke to the upside. Another idea is to take full or partial profit at the next major resistance level set at 339.75.

POTENTIAL DOWNSIDE PER CONTRACT

Once the position is open, if prices fall below 311.25 the futures position should be closed as the strategy failed to materialize.

Ascending triangles happening in the markets now

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