Over the years I have observed one stock chart pattern that seems to repeat itself again and again in strong stocks that moves up. It is what I call the bullish consolidation at 20 MA chart pattern. This chart pattern is great for those who like the idea of trading stocks that are moving higher. In a sense, you are intelligently buying a stock at a very high price and selling it at a higher price. Something that goes contrary to the belief of many people of buying low and selling high. This pattern involves a trader searching for a stock that is resting and waiting to shoot higher.
This chart pattern is easy to spot because of the tight consolidation that happens to the stock. The stock will consolidate or move sideways in an orderly fashion and then as it meets the 20 MA, the stock explodes higher.
The chart above is a good textbook example of how the consolidation at 20 MA looks like. The red line on the chart is the 20 day moving average. Notice how the stock already had a big run up prior to the pattern. This scares many investors and many newbies because in their mindset, the stock has already moved quite a lot and they think its dangerous. In most cases it is. But as the stock rises, there came a point in June 2017 where the stock started to trade sideways. We call this consolidation. In other words, the stock is taking a rest.
Just like human beings, a stock needs to rest after a big run up. Imagine a person who climbs a mountain. Somewhere along the climb, he or she needs to take a rest, drink some water or eat a bar of chocolate. The person rests before climbing higher. The same thing goes with stocks. The stock takes a rest, eat some chocolate, drink some energy drink and then when it meets the 20 MA, the stock breaks out.
It is important to take note that the stock must be trading in a nice tight consolidation and not the wide and whippy type of movement. A tight range shows an orderly movement and a possible continuation. A wide and whippy type of movement usually hints of volatility and a top in the stock and therefore, they are less reliable than a tight type of consolidation.
The beauty of chart patterns is what happens in one timeframe can also happen in another time frame. The bullish consolidation at 20 MA also happens in smaller timeframes such as the 60 min chart and the 15 min chart. When you are able to identify this pattern, it brings so much possibility to trading in different time frames. There are some small differences with regard to different timeframes but the gist of this pattern is:
The chart above is a 60 min chart of KITE a biotechnology stocks. You can see how the stock rises from around 106 to about 120. Most people would be afraid of buying the stock as it has already run up so high so fast. However, the stock consolidated in a tight manner and then it touches the rising 20 MA. Soon after that, the stock broke out higher and went from around 122 to about 130.
The chart above shows the 15 min chart of BABA. Notice how the stock traded sideways for awhile in a tight consolidation and as it touches the 15 min 20 MA, the stock climbed higher the next few days.
BIIB is another great example of how consolidation at the 15 min 20 MA helps to set a breakout higher in the stock. The stock climbed higher for the next 2 days and this setup is great for those who wish to have a short swing trade in the stock. A short term stock trader can buy the breakout and sell the stock the next day.
May 06, 19 06:04 AM
Technical analysis of the US stock market with coverage of futures.
May 06, 19 05:46 AM
Step by step technical analysis of the KLCI Malaysian stock market.
Apr 22, 19 06:55 AM
A technical analysis of the US stock market. I go through the major indices of the US market and see where it is likely to go.
Apr 22, 19 06:47 AM
Technical analysis of the Hang Seng. Learn how the Hong Kong stock market is doing and where it is likely to go.
Apr 22, 19 06:36 AM
Technical outlook for Malaysia's biggest market cap stock.