Let’s take a look at the Brazil ETF symbol EWZ on the weekly chart. Back in late 2008 and into early 2009 EWZ was in a consolidation pattern I marked with converging blue trend lines, and thus building steam for a strong move one way or the other. The break out to the upside from this pattern was impressive. Your entry will never be perfect 100% of the time, but one thing you can always do is get out of a trade that is on the wrong side of vertical development. I believe learning how to lose is as important as learning how to win. Any short holders in EWZ on the break out from this consolidation area were in trouble, and if they added to their short position trying to average down, they were increasing their potential for serious financial pain. Add to winning trades not losers. Low volume throw backs to a rising moving average are a great opportunity to add to a winning trade that is in the vertical phase of development. Always be reluctant to take a profit not a loss. Use swing rule as a good profit taking target from consolidation patterns. In a triangle formation such as this one, the target is the length from the first reaction inside the triangle to the opposite side which I highlighted with light blue ovals in early October 2008, which was approximately 12 points. Let me touch on psychology for a second.
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