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 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: Bank of Queensland Ltd
As you can see from the below chart, BOQ has been in a mid-term downtrend (1) but has a short-term uptrend (2) in play. With the stock now at the centre of a pennant, it is likely the stock will break out in either direction and continue in that fashion for a while. As the longer-term trend (3) is up – if we look back at April – we would expect the share price to rise again. Just be mindful that this example shown is on BOQ, a stock that does have a dividend coming out later this week, but the pattern is still relevant non the less. Another point to add; if you look at the uptrend that has formed since April, you can see that the share price kept coming back to trend and rising after breaking out of the short pennants forming (3).
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