The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
Also, you must realize that as with all trading strategies, opinions can
change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set ups, and
examples of entry and exit strategies.
Consolidation Patterns
The market value of a stock is a determined by pure supply and demand
battles between Bulls and Bears.
This supply and demand is constantly changing on a minute by minute basis.
There are probably hundreds of both rational and some irrational factors
that play into a stock movement.
I believe that stocks move in trends that can last for a long time. During
these major trends, minor counter trends do develop and the trader tries to
take advantage of movement both to the up and down on stocks.
It is also very common to see stocks trade in a range until supply or
demand factors resolve themselves.
It is moves from these consolidation areas that present some of the best
trading opportunities.
These consolidation patterns can take the shape of rectangles, symmetrical
triangles, ascending triangles, descending triangles, flags, double tops or
bottoms and even triple tops and bottoms, head and should formations and
rounding tops or bottoms.
It sometimes amazes me how the stock market follows the same crowd behavior
and keeps repeating these patterns over and over again. The basic nature of
the markets fear and greed exhibits itself everyday.
Let's examine one of these formations.
Let's look at a rectangle formation in AMGEN, (NASDAQ: AMGN).
Over the past couple of weeks, AMGN has been trading in a range from 72
� and 75 �.
This is despite some major volatility in many stocks over the same time frame.
This consolidation pattern where buyers and sellers are fighting over value
should be resolve in the next day or so.
I would play this pattern by placing a Buy Stop order at 76 and a Sell Stop
order at 72.
The market will tell us which way the break is going to be.
I would place my stop 2 points away from the entry of the breakout.
