Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
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 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: Commonwealth Bank
As you can see from the below chart, CBA has been in a long-term downtrend for over a year now. The recent lows of CBA, seen back in October 2018, have since reversed and now creating a short-midterm uptrend and now creating a pennant pattern. If the share price continues to stay below the downtrend line coming in around $72.50, and the uptrend continues above $69.26, CBA’s share price will squeeze closer and closer together. If you are following Carlo’s trading rules, you will also remember that when a pennant pattern breaks, the share price tends to follow in the direction of the breakout for a couple of days. With company reporting season upon us, we may see the share price break out of this quite soon.
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,