Breakpoint Trades Offers Something For Everyone,

This was the original website for BreakPointTrades.net. When Breakpoint Trades developed a new website BreakPointTrades.com​, the .net version's domain registration was allowed to expire and the site disappeared form the web. My uncle was a member of the original website and later became a member of the new site. My uncle has always appreciated the daily list of stock picks and the forecasting, plus the "education" he receives from the BreakPointTrade website (old and new). Since he worked for an e-commerce site that sold not only paper towels wholesale and retail, but also all sorts of janitorial supplies, he was always checking out paper related and eco friendly janitorial supply manufactures' stocks. Now what's interesting a janitorial paper product related stocks, you can look at companies that are forest product stocks or you could investigate companies that produce and distribute varying paper products to customers and businesses. My uncle could sure talk a blue streak about the differences between paper towels whether they were eco friendly versus not, if they were multi-fold or C-fold, or were appropriate for regular capacity center pull towel dispensers, toachless center pull, ultrafold paper towel dispenser or roll paper dispenser. Well you get the point. He knows his paper towels and paper products like Breakpoint Trades knows stocks.

Recently I discovered that the domain for BreakPointTrades.net was available, so I bought it with the goal of recreating some of its content from archived pages and to point visitors to their new site: BreakPointTrades.com​. I definitely didn't want someone else purchasing the domain and re-purposing it for something that had nothing in common with the original website.

PLEASE NOTE THAT THIS PAGE CONTAINS SELECTIVE ARCHIVED CONTENT FROM THE ORIGINAL SITE.

Since the site will not be exactly as you remember it, please be indulgent.

Now let's take a nostalgic stroll back to the early years of BreakPointTrades.net.

 

 

Breakpoint Trades offers something for everyone, whether you are a fast Day Trader, a Swing Trader, and or you like to hold stocks for the long term to catch a trend.

Empowering The Individual Trader/Investor

Breakpoint Trades is an online company that specializes in empowering the individual trader/investor through technical analysis. We provide a daily list of stock picks that is among the best anywhere on the net, no matter what the market conditions. Breakpoint Trades also specializes in market timing and forecasting through sector/index analysis. No matter if you are a day trader, a short-term swing trader, or a long term trader, Breakpoint Trades provides something for you.

We have many different sections to suit your trading needs. See the right hand tool bar.

Something For Everyone

Day Traders and Swing Traders: Why waste your time spending countless hours scanning the market for picks, when you can let us do the work for you? Our specialty is stock pattern recognition. Whether you like breakouts, flags, triangles, wedges, head and shoulders, etc., you'll find our list to have what you're looking for. We have a daily list of new picks, as well as picks based on recent insider buying/selling, and a story stocks section based on fundamentals.

Newsletter

Every Sunday, a newsletter is provided giving a wealth of information, such as a review of the previous week, as well as examining the potential market direction for the coming week and what to look for.

Chat Room

We have a great chat room. There you will often see trade setups in real time, allowing you to learn and actively participate in the trades if you wish, ask questions, etc.

Breakpoint Trades offers so much that it might be confusing at first on how best to utilize this website, therefore here are some tips:

First off, what kind of trader are you and what are you looking for???

 

 

Here you will find information about the various chart patterns and technical indicators we use at Breakpoint Trades. The goal here wasn’t to write a book or re-invent the wheel, but to cut out the fluff and include only the most important and useable information. This section contains very useful and important information not found on many other trading websites:

How much do you know about Technical Analysis? 

Chart Patterns:

Here you will find valuable information on chart patterns that are the staple of technical analysis and the ones we at Breakpoint Trades use every day. You will also find a basic description of the chart pattern, along with many examples of stocks that exhibit good examples of these patterns. It is my belief that one learns by seeing lot’s of examples, rather than one or two ‘text book’ examples. Therefore, I will be continually adding the best real chart examples that have been profiled on Breakpoint Trades along with others that I might find over time.

Also, you will find something here that is very useful - statistics on chart patterns! For instance, have you ever wondered what is the probability that an ascending triangle will breakout to the upside? What is it’s failure rate? What is the average percent rise I can expect, or how many ascending triangles on average will hit their price targets and in what time frame? Knowing the statistics and probability of chart patterns will give you, the trader, a very powerful advantage. For instance, if you know the statistics, you will know what type of money management system you should use, i.e. you can incorporate various investment strategies to vary your investment by progession or regression. Also, knowing the statistics makes it easier to stick to a system to maximize your profits by trading objectively and not fall prey to one’s emotion. Most novice traders lose money because they hold on to losers too long and sell their winners too quickly. This problem stems from uncertainty. Statistics can help take away this uncertainty and help you trade more objectively.

All the statistical information for the chart patterns is referenced form the book: Encyclopedia of Chart Patterns by Thomas N. Bulkowski - Publisher: John Wiley & Sons. Click the title to buy this excellent book. I recommend everyone buy this book. It does in-depth statistical analysis on 50 different chart patterns over a 6 year period from 1991 to 1996. Please note that the various chart sections attempt to summarize the most important statistical information in Bulkowski's book, and are not a replacement for the huge amount of information found in the book. Also the statistics are probably biased to the time frame of study, and may not be totally applicable to today, however they are probably close enough to be very useful.

 


 

Descending Triangles

General Information:

Descending triangles are bearish biased patterns that are characterized by a series of at least two lower highs along with a series of at least two lows that stop or find support out at around the same price. The lower highs can be connected with a downtrend line, while the lows can be connected with horizontal or near horizontal line that forms the support area. Keep in mind that descending triangles MUST have at least two minor highs forming the top trendline and at least two minor lows forming the bottom. Many people incorrectly identify descending triangles, for instance consider a pattern that has 3 lower highs but only has 1 low – this is not a descending triangle even though it might look exactly like one.

The volume tends to decrease during the formation of the pattern. A generic price target can be calculated by measuring the height of the triangle and subtracting it from the horizontal support line that forms the bottom of the pattern.

Below are two tables of statistical information from the book “Encyclopedia of Chart Patterns” by Thomas N Bulkowski

Statistics: based on a population of 689 examples in 500 stocks from 1991 - 1996.

 

 

Ascending triangles

General Information:

Ascending triangles are bullish biased patterns that are characterized by a series of at least two higher lows along with a series of at least two highs that top out or find resistance at around the same price. The higher lows can be connected with an uptrend line, while the highs can be connected with horizontal or near horizontal line that forms the resistance area. Keep in mind that ascending triangles MUST have at least two minor highs forming the top trendline and at least two minor lows forming the bottom trendline to be valid. Many people incorrectly identify ascending triangles, for instance consider a pattern that has 3 higher lows but only has 1 high. This is not an ascending triangle even though it might look exactly like one.

 

The volume tends to decrease during the formation of the pattern. A generic price target can be calculated by measuring the height of the triangle and adding it to the horizontal resistance line that forms the top of the pattern.

All the statistical information for the chart patterns is referenced form the book: Encyclopedia of Chart Patterns by Thomas N. Bulkowski - Publisher: John Wiley & Sons. Click the title to buy this excellent book.

 

Statistics: based on a population of 725 examples in 500 stocks from 1991 - 1996.

 

 

Surprise Findings:

Even though the average time for pullback completion takes about 13 – 15 days, note that pullback will begin much sooner than this, such as only a few days after breakout. Therefore, if you buy an ascending triangle after it breaks out, don’t ‘freak out’ if it starts to pullback, or if the volume is low – per the volume statistics above.

For swing trading, it is so important to let your winners run and sell you losers quickly. Most novice traders hold on to their losers too long. How does this happen??? After a trader has a string of losses, he/she surrenders to emotion which causes him/her to lose objectivity. In this example, once the trader surrenders to emotion, he/she will feel a psychological need to quickly lock in some profits to feel better i.e. the trader does not let his winners run.

Do not fall into this destructive trap – sell your losers quickly and let your winners run – trade objectively, not emotionally. It’s also a lot easier to let a position run than constantly trading in and out of positions quickly – at least it is for me and is the reason I do not day trade.

 


 

Symmetrical Triangle Tops (uptrend)

General Information:

Symmetrical triangle tops are neutral biased patterns that are characterized by a series of at least two lower highs along with a series of at least two higher lows that converge towards a point. The series of lows and highs can be connected with two trendlines that intersect to form a point or apex, with both the upward sloping and downward sloping lines having similar slopes. A coil is a spring that holds a large amount of energy that can be released all at once, hence Symmetrical Triangles are somtimes called coils because of their shape and tendendcy to produce large percentage price movements in a short period of time.

The volume tends to decrease during the formation of the pattern. A generic price target can be calculated by subtracting the lowest low from the highest high and subtracting or adding this value to the apex or point of the triangle. Symmetrical Triangles are more reliable if they do not breakout at the apex, but do so roughly 3/4 of the way through the pattern, this is supported by the statistics below. Symmetrical Triangles that go all the way to the apex tend to have a high failure rate and and little of a coil effect.

Below is a table of statistical information from the book Encyclopedia of Chart Patterns by Thomas N. Bulkowski - Publisher: John Wiley & Sons

Statistics: based on a population of 162 upside breakout examples and 92 downside breakouts in 500 stocks from 1991 - 1996.

 

 


 

Falling Wedges

General Information:

Falling Wedges are bullish biased patterns that are characterized by a series of lower highs and lower lows that converge in a downward pattern. Two trendlines can be drawn connecting the highs and the lows resulting in a downward right-angled sloping triangle. These downward trendlines should be tested several times with the most reliable formations touching the trendlines at least 5 times. The time length or duration of the pattern should be at least three weeks, anything shorter is probably a Pennant. The volume tends to decrease during the formation of the pattern

If one misses the breakdown, he/she may have a second chance to short the stock on a retest or pullback to the pattern – this happens about half the time per the statistics below. Upside breakouts generally occur about 2/3 of the way through the pattern to the apex. Also note that upside breakouts do not need to be confirmed with high volume, as stocks can fall under their own weight. Falling Wedges can are prone to premature breakouts either up or down as is any pattern and this does not signal the end to the pattern. In fact, statistical information from “Encyclopedia of Chart Patterns” by Thomas N Bulkowski, shows that 27% of Falling Wedges are subject to a premature breakdown. If a Rising Wedge is broken to the upside via a Breakaway Gap, the likely hood of a nice run-up is enhanced and I would consider this have an even better chance of success. A generic price target would be a rise to the top of the pattern – however many breakouts find temporary resistance at the 38.2% Fibonacci retracement level so be aware of this as they are mostly temporary. Also note that while these patterns can be very profitable, they are quite rare with only 132 examples found in 797 stocks from 1991 – 1998, “Encyclopedia of Chart Patterns” by Thomas N Bulkowski.

All the statistical information for the chart patterns is referenced form the book: Encyclopedia of Chart Patterns by Thomas N. Bulkowski - Publisher: John Wiley & Sons. Click the title to buy this excellent book.

Statistics for Falling Wedges based on a population of 132 examples in 797 stocks from 1991 – 1998

 

Comments on the above tables:

Falling Wedges have a low general failure rate based on statistics, and has one of the lowest general failure rates of all the stock patterns. However, it is still best to wait for the upside breakout confirmation to go long.

The other things that stand out is the high “most likely” rise of 20 - 30% as well as the high 88% meeting their price targets.

The majority of Falling Wedges have a downward volume trend as do most technical patterns, so this is not surprising.

However, the statistics show that Falling Wedges tend to go up the same amount percentage wise whether they breakout on very high volume or very low volume, 40% and 42% respectively. These statistics are very interesting to me and show me that what I thought previously about volume importance was not correct.

Therefore, don’t ‘freak out’ if you buy a Falling Wedge after it breaks out, but it’s on low volume – the statistics seem to say that it doesn’t matter.

 

Rising Wedges

General Information:

Rising wedges are bearish biased patterns that are characterized by a series of higher highs and higher lows that converge in an upward pattern. Two trendlines can be drawn connecting the highs and the lows resulting in an upward sloping triangle. These upward trendlines should be tested several times with the most reliable formations touching the trendlines at least 5 times. The time length or duration of the pattern should be at least three weeks, anything shorter is a pennant. The volume tends to decrease during the formation of the pattern.

Rising wedges should only be shorted once a downside breakout has occurred as this lowers the risk substantially – see the table of statistics below. If one misses the breakdown, he/she may have a second chance to short the stock on a retest or pullback to the pattern – this happens about half the time per the statistics below. Downside breakouts generally occur about 2/3 of the way through the pattern to the apex. Also note that downside breakouts do not need to be confirmed with high volume, as stocks can fall under their own weight. Rising Wedges can are prone to premature breakouts either up or down as is any pattern and this does not signal the end to the pattern. However, if a a breakaway gap forms whereby the stock gaps up out of the pattern, this ends the pattern. A generic price target would be a fall to the bottom of the pattern, however some wedges may find support at one of the three Fibonacci numbers of 38.2, 50, and 62.8% - however the 38.2 and 50% levels seem to be the most like place to bounce.

All the statistical information for the chart patterns is referenced form the book: Encyclopedia of Chart Patterns by Thomas N. Bulkowski - Publisher: John Wiley & Sons. Click the title to buy this excellent book.

Statistics: based on a population of 179 examples in 500 stocks from 1991 - 1996.

Surprise Findings:

Even though the average time for pullback completion takes about 10 days, note that pullback will begin much sooner than this, such as only a few days after breakout. Therefore, if you short a Rising Wedge after it breaks down, don’t ‘freak out’ if it starts to pullback, or if the volume is low – per the volume statistics above.

For swing trading, it is so important to let your winners run and sell you losers quickly. Most novice traders hold on to their losers too long - why does this happen??? After a trader has a string of losses, he/she surrenders to emotion which causes the trader to lose objectivity. In this example, once the trader surrenders to emotion, he/she will feel a psychological need to quickly lock in some profits to feel better to make up for the losses i.e. the trader does not let his winners run.

Do not fall into this destructive trap – sell your losers quickly and let your winners run – trade objectively, not emotionally. It’s also a lot easier to let a position run rather than constantly trading in and out of positions quickly – at least it is for me and is the reason I do not day trade.

 


 

Negative Divergence

General Information:

Normally stocks and their respective mathematical indicators confirm one another. For example, usually when a stock forms a higher high, so does one of it's mathematical indicators, and vise versa. However, sometimes a divergence takes place where the stockprice and the indicators do not match. Technical divergence can be thought of as an anommoly - in other words, the divergence can only sustain itself so long before the indicators and the stock price match again. Always be on the lookout for technical divergence especially after a stock has been in an extended uptrend as it can be a good warning that a stock is going to change direction. Thus, Negative Divergence is usually seen after a stock has run-up from a prior chart pattern that has broken out.

Negative Divergence is a consition where a stock or security forms a higher high, but a mathematical indicator (such as the MACD, Stochastics, etc.) forms a higher low - hence, a divergence takes place. Traders should look for Negative Divergence when they are holding short positions as a signal to cover them. Positive divergence is very useful in that it often signals the end of a decline and /or buying opportunities well before the other more common chart patterns.

 

Positive Divergence

General Information:

Normally stocks and their respective mathematical indicators confirm one another. For example, usually when a stock forms a lower low, so does one of it's mathematical indicators, and vise versa. However, sometimes a divergence takes place where the stockprice and the indicators do not match. Technical divergence can be thought of as an anommoly - in other words, the divergence can only sustain itself so long before the indicators and the stock price match again. Always be on the lookout for technical divergence as it can be a good warning that a stock is going to change direction.

Positive Divergence is a consition where a stock or security forms a lower low, but a mathematical indicator (such as the MACD, Stochastics, etc.) forms a higher low - hence, a divergence takes place. Traders should look for positive divergence when they are holding short positions as a signal to cover them. Positive Divergence is useful in that it often signals the end of a decline and /or buying opportunities well before the other more common chart patterns.

There are many stocks that formed positive divergence technical patterns in early to middle October 2002 that signaled a buying opportunity and was a warning to anyone holding shorts to cover their shorts and go long.

However, what really surprised me was that many newsletters and traders who use technical analysis totally ignored this bullish situation and continuted to either hold their shorts or short more as the market entered a huge rally. Basically, what happened was that the markets were in huge downtrends from late spring or most of 2002, and traders let themselves become biased to the short side as they ignored this positive divergence. Therefore, never allow yourself to become too bisaed on the short or long side that you become blind to the obvious. Becoming too biased either short or long can cloud your judgement. Remember to trade based on what the charts tell you, not your emotions!!!

 


 

Elliot Wave

General Information:

Elliot Wave theory is an outgrowth of the original technical market analysis of Dow Theory. The Elliott Wave Theory is named after Ralph Nelson Elliott. R.N. Elliott who concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves. Elliot Wave theory postulates that the market movements of each cycle are defined and predictable. There are two types of waves, impulse (or primary) and corrective. Primary waves consist of 5 waves and move in the trend of the market and can be bullish or bearish. Waves 1, 3 and 5 move with the primary trend, while waves 2 and 4 move counter to the primary trend. The corrective wave consists of 3 waves usually denoted A, B, C. Generally, Correctie waves form after a 5 primary ends and vice versa.

Some rules for a 5 wave primary count:

  • Wave 2 should not break below the beginning of Wave 1 and generally do not retrace more than the 61.8% Fibonacci number; 
  • Wave 3 should not be the shortest wave among Wave 1, 3 and 5 and is usually the longest; 
  • Wave 4 should not overlap with Wave 1, except for wave 1, 5, a or c of a higher degree. 
  • Rule of Alternation : Wave 2 and 4 should unfold in two different wave forms. 

Note that Elliot Wave theory is a highly subjective form of technical analysis. Each practitioner may use a different starting point for the wave count they use. The complexity of Elliot Wave theory has made it difficult for many investors to use reliably. However, this doesn't mean they should not be used or observed. I am not an Elliot wave master, but I will use them whenever they are obvious as in the Nasdaq and Dow examples below. If I have any doubt about the wave count for a particular stock or index, then I will not use it, but will use tradition forms of Technical Analysis such as chart patterns, trendlines, etc.

Short Term Base Breakout

General Information:

There is a misperception among many traders that after a stock has been in a long downtrend, it needs to form a nice long base in order for it to be a good long candidate. However, this is not the case, stocks can form very short bases of a few weeks and offer huge upside potential. The base of these patterns is short term, and definate resistance line can be drawn that signals the trader to enter long once broken. Typically, these patterns also exhibit Positive Divergence which signals the stock is going to breakout. These short-term basing patterns sometimes resemble the letter W, where the resistance would be at the top of the middle hump (see the picture above). These types of patterns should not be ignored because they can produce huge upward price movements after breakout.

Below I've placed some examples of stocks that classify as Short-Term Base Breakouts.

 

 

GMR above is a great example of a Short-Term Basing Pattern. Also notice how this pattern looks like the letter W and you can see the Positive Divergence that formed prior to breakout. After breakout, GMR really takes off and even froms a bullish Ascending Triangle.

 

Linear vs. Logarithmic charts

Should I use logarithmic or linear plotted stock charts? This is one of the most common questions asked by traders who use technical analysis. The answer is, it usually doesn’t matter. I prefer to use linear charts in most cases - but I do check stocks I want to trade using both a linear and logarithmic chart. Sometimes it does matter and it’s best to use logarithmic charts. One instance where the need to use logarithmic charts over linear charts is for stocks that have a large price range in a give time frame. This usually does not occur very often on daily charts with a 6 month to 1 year time frame, but occurs regularly with stocks over a long time frame that have large price variations. This is generally encountered with weekly or monthly based charts where the stock or index had a parabolic price movement, either up or down.

Why is this important you ask? Well, in technical analysis, we often use trendlines to identify which way a stock or index is trending. For instance, trendlines tell you if a stock is in an uptrend or downtrend, they also indicate support and resistance zones, as well as identifying important stock patterns such as triangles, flags, pennets, etc. When a stock has had a large price movement in a given period of time (i.e. a parabolic price move) it becomes difficult to draw meaningful trendlines. When a stock’s price goes parabolic, it means that the price moves either up or down in a curve at an ever increasing slope, until eventually it is moving almost straight up or down and forms a pattern much like a half circle or half moon. In other words, the stock price starts at almost a zero degree slope until it reaches almost a 90 degree slope. In science, when data is plotted from an experiment, if often does the same thing. Scientists use logarithmic charts to make the curve a straight line so that they can measure the slope and get an equation. In technical analysis, the log charts do the same thing by taking away the curve in the price movement so that straight lines, or trendlines, can be drawn to connect highs and lows.

Cisco System (CSCO) is perfect example of this phenomenon and illustrates the need to use a logarithmic chart. Below is a multi year linear chart of CSCO. Notice that it is difficult to draw meaningful trend-lines on this chart because of the half-moon shaped curve from the parabolic movement in price over this time frame. Thus, the chart needs to be plotted on a logarithmic scale to give us meaningful data.

 


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