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Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.

Horizontal Channel Pattern on the S&P/ ASX 200 (XJO)

As traders, we use technincal analysis as a reliable 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 in a chart in search of patterns or consistantly traded support and resistance levels. Today we are looking at a Horizontal Channel.

Appearance:  A channel pattern comprises of:

  • A strong resistance level the stock has reversed from.
  • A strong support level where the stock has moved bullish after touching or getting close to.
  • A mid to long term period where the stock has channeled between the resistance and support levels.

Pattern: The Horizontal Channel Pattern is one of the most common patterns you will see when looking at a sideways market. You can see that when the stock hits that key resistance level, the share price moves down to start looking bullish. Once it has hit its support level, it usually changes to bullish straight away.

Important Note: To time this pattern correctly usually takes a little while since you will need the support and resistance levels to be confirmed before you can have a clear view that the stock is stuck between the channel lines.  If the levels are not confirmed, the price level may just be taking a breather before heading in either the long-term trend line, or a breakout to the opposite direction.

Example: S&P/ ASX 200

The XJO has been in a sideways (horizontal channel) pattern for just over three weeks now. As you can see from the below chart, the XJO has bounced off the 6,300-resistance level and started to head back to the support at 6,200.  Note also how the support level doesn’t always have to be touched for the index to continue in this channel.

 

There are many ways that you could take advantage of this continuation. 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 find out more about this potential opportunity or would like to learn more about trading systems, please call Traders Circle on 03 80805788 and speak to one of our advisers.

Regards,

Your Freedom Fighter,

Benjamin Farkas