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The debt problem has been haunting the stock market, and a volatility exists where any small change could trigger a big shift in the market.  The problem lies in investors not knowing how new information will affect everything.  If you buy stock expecting that the news will be good and you are wrong, you stand to lose all of your money.

The question that many try to answer: How can we limit risk? Is there a way to profit no matter which way the market went? In this two part article, we will examine the strategies necessary to do this.  If you have already read this section, skip to part 2 here.

So how do we begin limiting our risk? The answer lies partially in a concept called technical analysis.  In technical analysis, charts (based on stock prices and the volume of trades) help us evaluate recent trading activity. Often times, traders will set upper and lower price points, creating a trading band that shows the range that they are comfortable buying/selling stock. These price points often show up on charts as resistance (upper) and support (lower) for trades.

Studying these charts for certain patterns will allow us to draw conclusions and determine how the trader feels about the future of a stock. One pattern is called a “Triangle Pattern.” It’s named this because it literally looks like a triangle.

To see this pattern, draw a line from one upper point to another high point, and similarly draw a line from one low point to another low point. Over the course of the period you are observing, a triangle pattern emerges if the lines begin to converge.

This pattern represents a bit of hesitation by traders, as they are seeking direction. Traders, by nature, are looking to take prices higher or lower, they are not interested in sitting still.

When you see a triangle pattern, it’s usually the calm before the storm.  Investors are waiting for an indication as to whether they should be buying or selling stock. Indeed, it’s when the stock breaks out of the Triangle Pattern that is most interesting, as it typically involves a huge uptick or downtick.

Notice how the pattern breaks out with a large swing?  With this in mind, we could build a straddle position with options to capture that large swing, and profit regardless of how it turns out.

So, how can we position ourselves to make money no matter which way the stock goes?  The answer lies in part 2.  Click here to continue reading.