Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technincal analysis as a method for speculating on future price direction of both equities (shares) and indexes. Technical Anyalysis in simple terms is the study of historic price movements on a chart in search of patterns or consistantly traded support and resistance levels.
Today we are looking at a specific chart pattern that falls under the more obscure continuation patterns, the Right-Angled and Descending Broadening formation.
Appearance: A Right-Angled and Descending Broadening pattern is comprised of:
- A strong rise of bullish momentum with the volume and share price rising.
- A resistance level forming after the strong rise.
- The support starts to show itself as a downtrend, forming what looks like a megaphone on the chart – at the same time volume starts to decrease.
- The ‘megaphone creates a pattern that has around 5 touch points; 3 on the resistance level, and at least 2 on the support downtrend.
Important Note: Be aware, this pattern could be the stock creating a resistance level and then a reversal pattern emerges.
Example: APA Group
APA Group has formed this pattern over the last 4 months and looks to start bouncing from the support downtrend and starting to move higher in share price. (The formation over a period of three months or more is also quite a determining factor when looking at this bullish pattern). As you can see from the chart below, APA has touched the resistance level at 3 points, and the support level 3 times as well. The last touch to the downside can be considered the price movement to the upside. By calculating the distance from A to C, you can determine the potential rise of the stock past A. Another important factor of this continuation pattern is when it confirms the long-term trend. I have included the ‘potential-ness’ of this in the title as we would have to see APA break the resistance level as its next move, but I also wanted to highlight an obscure, and potentially new chart pattern that some traders might never have heard about.
There are many ways that you could take advantage of these patterns. As a specialist in derivatives, we are able to profit on a stock when it falls as well as when it rises.
If you would like to learn how to pick a stocks direction, then Join us at our live face to face one day “Technical Analysis, Picking the Direction of a Stock” course.
Contact us today on 03 8080 5788.