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Rising Trend Channel Buying Opportunities

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A rising trend channel doesn’t necessarily indicate a trade, but it does warrant attention. A trend channel occurs when the price is rising within defined boundaries (trendlines), which can provide insight on where to enter and exit trades. Trend channels are a visual way to see the price action and can be combined with other patterns such as triangle or consolidation breakouts to signal trades. These two stocks are in rising trend channels and have also formed triangle patterns over the last several weeks. Aggressive traders will be buying near the bottom of the triangle at channel support, while other traders will be watching for a triangle breakout.

Autodesk, Inc. (ADSK) has been rising sharply since the start of 2016. The current rising trendline began in June, and currently, the price is near the bottom of that channel (support). Channel support is near $82, and the price tested that area in early March and then tested the $83 region in late March and early April. This indicates buyers are still stepping up in that region. Traders can look to buy in that region, with a stop loss below $81.25. Alternatively, watch for a breakout from the triangle that has been forming since the start of March. A rally above $86.10 (ideally a closing price) signals a triangle breakout and rally to $93. The target is based on the height of the pattern (approximately $7) added to the breakout price. The $93 target also aligns with the top of the trend channel, which has been acting as resistance.

Take-Two Interactive Software, Inc. (TTWO) started its uptrend in mid-2012 and has accelerated in 2017. Over the years many trend channels could have been drawn to suit the price action. The most recent channel began in October, and as of April, the stock is trading near the lower trendline at $57.50. The price has been moving sideways since late February, forming a support area between $58 and $56.50. Some traders will be looking to buy in that region, with a stop loss below $56.10. An alternative is to buy on a breakout above the triangle pattern that has been forming since mid-February. A rally above $59.70 breaks the pattern, but waiting for a clean break above $60 can also be used. A close above $60 hasn’t happened yet, even though the price has edged above it a few times. The triangle is approximately $3.50 in height, and if added to the $59.70 breakout price provides a target of $63.20. That target also aligns with the top of the current trend channel (resistance).

The Bottom Line

Combine techniques to find trading opportunities, and different ways to trade those opportunities. Screening for trend channels highlights stocks that are moving with rhythmic trending waves. Wait for the price to show respect for trend channel support before buying. Consolidations, bouncing off the channel bottom or the price moving into a continuation pattern are all signs that buyers are still stepping in near the channel lows. When this happens, consider a purchase near support. Buying on a breakout above the triangle, in alignment with the overall trend, is another strategy that can be utilized. In either case, a stop loss is placed below swing lows. The stop loss protects capital in the event the price heads lower after triggering a long trade.

Disclosure: The author doesn’t have positions in the stocks mentioned.

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