Understanding the Steam Handle and Trading Triangle

STEAM

The semicircular “steam” handle refers to trading power; a visual indicator of SMID Investings sentiment on either adding or selling positions of that particular company going forward. Far leftmost position indicating a strong buy sentiment, the far right indicating a strong sell sentiment; if the handle is in the upmost position, it represents a position hold. There is a direct relationship between the steam handle and the trading triangle.

 

Trading Triangle

Our investment philosophy is not original, its been proven repeatedly by the best investors, that’s why we know it works so well. As we enter a position we gradually purchase shares in the company when short–term projections come to fruition; represented by the “left green triangle” and the liquid inside of it rising from step 0 to 1 or 2.  As our position in the company increases the overall market price of the security should also be increasing, and our buy side green triangle will indicate this as the liquid rises up to steps 3,4,5 or 6.

Now the opposite holds true with exiting positions. A gradual selling process should occur as indicated by the “right red triangle” and the liquid inside of it lowering from top down in step 0 to 1 or 2. This process will continue for reasons stated in that analysis the main key principal being that the risk of holding that position outweighs the potential return.

 

Examples

We believe that a great analogy of studying the correlation between the steam handle and the trading triangle can be seen in these hypothetical investment scenarios; the entertainment XFactor: baseball!

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