Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technical analysis as a reliable method for speculating on future price direction of both equities (shares) and indexes. Technical Analysis in simple terms is the study of historic price movements in a chart in search of patterns or consistently traded support and resistance levels. Today we are looking at a specific chart pattern that falls under continuation patterns, the Descending Triangle.
Appearance: A Descending Triangle pattern is comprised of:
- A down trending stock that has lower peaks and troughs.
- A support level where the stock is channeling towards.
- Both trend lines create a triangle forming in the bottom right of your chart.
Important Note: Be aware, this pattern will not be confirmed until the share price breaks through the support level and continues the downtrend.
Example: Australia and New Zealand Banking Group (ANZ)
ANZ has been on a short-term downtrend for over two months now, with the most recent acceleration of the downtrend being formed after hitting resistance at ~$28.06. Ever since this point, we have seen the share price falling and it has recently tested key support at $26.15 once again, after touching this level twice before. With the chart below now showing a signal that a descending triangle has formed and with the share price getting tighter to the point of the triangle, we will likely see ANZ break out soon. The pattern does seem to have one or two more days to go to play out however. The key levels to watch are if ANZ breaks the downtrend or sells off quickly and trades below the support level. If you are following Carlo’s trading rules, you will remember that once a stock has broken out of triangle, it will likely continue in that direction for a few days.
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 two day “Technical Trading for the Australian Market” course.
Contact us today on 03 8080 5788.