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 Anyalysis 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 called a Pennant.
Appearance: A pennant pattern comprises of:
- A strong long-term trend line, either bullish or bearish.
- A counter trend forming towards the long-term trend line coming to form a triangle.
- A breakout from the point of the triangle in any direction.
Pennant Pattern: This pattern is one of the most reliable patterns. You can see that when the stock comes back to the long-term trend line, it will break out of the pennant and then usually continue in the direction of the breakout for a while.
Important Note: To time this pattern correctly usually takes a strong understanding of the next direction. If the pennant forms on an up-trending stock, but you believe from a fundamental point of view that it is away to fall, you could use this technique to your advantage as the stock tends to follow for a few days after the breakout.
Example: Alumina Limited
AWC has been in a midterm downtrend for three months now, with the share price recently bouncing off key support. The share price has now rallied back to test the recent trough, as well as the next key resistance for AWC. With today’s move pushing the price to the exact resistance level in question, we will likely see a breakout of the pennant soon and a clearer view on the stock’s direction in the short-term. Since the price can easily continue to downtrend and test the latest support, there is also a strong indication that our overall market is bullish and that we could see AWC continue to be bullish for the short-term. Also, if you follow Carlos’s rules, you will know that stock tend to continue channeling in the breakout direction for two or more days.
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.
Your Freedom Fighter,