Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
Pennant Pattern on Ansell Limited (ANN)
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 historical 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 reversal patterns, the Evening Star.
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.
Continuation Pattern: The Pennant Pattern is one of the most reliable continuation 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: Ansell Limited
Ansell has been in a long-term uptrend, with the counter trends always testing the uptrends support. As you can see from the below chart, pennants are formed throughout the uptrend and keep following in the long-term trend. You can also see the length of the counter trend changes every time, but the pennant breakout always follows the breakout trend for the next couple of days. This doesn’t always follow suit, but for Ansell this has been the case for the last 11 months.
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,