Description
The Golden Triangle (Long Entry) strategy is a moving average based technical indicator developed by Charlotte Hudging in attempt to identify promising entries on stock charts. This strategy is an improvement on a popular "buy on a dip" practice that suggests making entries after a significant decline in hope that the price would eventually rise. The main principle of the strategy is to look for accelerating stocks that suddenly fall and then return to the initial uptrend. This sudden fall, anticipated to be a part of a bottom formation, defines the suggested entry point. While seeing bottoms appear on charts is quite common, their uptrend sections might be not as satisfying as one can expect. The Golden Triangle strategy is said to help identify stocks that are likely to regain acceleration. The name of this strategy refers to a geometrical figure that forms on chart when pullback and recovery fragments of the price action satisfy certain criteria.
The strategy uses the following criteria for the Golden Triangle identification:
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Initial uptrend. Golden Triangles form after an uptrend, so the strategy initially looks for a stock's price that rises faster than its moving average. By default, the 50 period simple moving average (SMA) is used.
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Pivot point. This point defines where the price switches to a short-term downtrend.
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Price drop. After the pivot, price needs to drop below its SMA and maintain this level throughout the price drop.
This defines the initial setup of the Golden Triangle. When the mentioned criteria are met, the strategy looks for price and volume confirmation to add a simulated Buy order. The price confirms when after the previously described downfall, it finally closes above its confirmation SMA. The volume confirms when it is at highest within last several days and greater than its long-term SMA. The volume needs to confirm on the same day the price confirmation happens or on a later day when the close price is greater than its previous value.
Input Parameters
average length
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The number of bars used in calculation of the long-term SMA. This SMA is calculated for both price and volume. |
confirmation length
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The number of bars used in calculation of the short-term confirmation SMA of price. |
volume length
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Defines the confirmation period upon which the highest volume is found. |
Plots
priceAvg
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The long-term SMA of the close price. |
Further Reading
1. "Finding The Golden Triangle" by Charlotte Hudgin. Technical Analysis of Stocks & Commodities, September 2014.
Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.
Technical analysis is not recommended as a sole means of investment research.
For educational purposes only. Not a recommendation of a specific security or investment strategy.