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 Bullish Flag Pattern.
Appearance: A Bullish Flag pattern is comprised of:
- A strong rise of bullish momentum with the volume and share price rising.
- A break of the uptrend line and a sideways to bearish period where the share price starts to fall slightly, and the volume of trading decreases from the recent strong trend.
- The breakout of the sideways to bearish movement and then a sharp rise higher once again. The volume should also accelerate after breaking out of the channel, or pennant.
Important Note: Be aware, this pattern could be the stock taking a breather or the direction is about to change to head Bearish. Wait to see the reverse to the upside and make sure the volume starts to increase.
Example: S&P/ASX 200
The XJO has today started to look like it is breaking out of the recent flag pattern. As you can see from the below chart, the XJO has recently pushed back above 6,200 and held here on the close today. With the index breaking out of the channel and looking strongly bullish, we might be about to see a move back up to 6,350 – as seen from the vertical line (line B) meeting the horizontal (line C) resistance level at 6,350. The point at which the market is suspected to get back to, is from drawing a line from the highest point of the channel, then drawing down to the start of the initial uptrend (line A). If we see a move back up to the post-GFC highs, this will be the confirmation that the bullish flag pattern has played out.
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.
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