Did you know that chart patterns can appear in any time frame? Whether it is weekly, daily or even a 5 minute chart, patterns appear again and again. If the chart pattern can appear in any time frame, it means that if you study one or two patterns, you can use it to trade any stock in any time frame. The beauty of multiple time frame analysis is that you are not only limited to one option of using the daily chart but you can zoom in to the 60 min and 15 min chart to find similar patterns. Master one pattern and you can trade any stock in any time frame.
The box pattern is one of the most common pattern that appear in stocks, commodities, indexes and currencies. Traded instruments do not go up or down forever. They tend to go up rest awhile and then resume higher. It is during the period of resting that a box is formed. Some call it the box pattern but some will call it a stock under consolidation. When a stock is consolidating, it means that the stock is resting and trading in a tight sideways pattern that eventually make it explode higher.
Think of a runner who has run 5 miles and then you give him a can of Red Bull to drink. He rests for 5 minutes doing nothing and after he finishes the drink, he resumes his run with extra strength. That is the power of the box pattern or consolidation.
The above shows how a box pattern looks like. The stock will trade sideways in a tight range and won't move that much for a period of time. During this time, the stock is said to be resting. It is in a consolidation and that is very good. It gives the stock time to prepare for the next big leap forward. Notice how AMZN formed a box and once it trades above the high of the box, AMZN exploded higher.
The beauty of chart patterns is that they appear in multiple time frames. Which means if you master 1 pattern you can forever find trading opportunities in the 5 min chart, the 15 min chart, the hourly chart, the daily chart, the weekly chart and perhaps even the monthly chart if you are extremely patient.
The above is the daily chart of McDonalds. Looks great isn't it? I'm lovin it! says the investor who bought the break out above the box. If you see heavy volume like the volume spike in the middle of the box like McDonald's stock, it means that someone with lots of money is buying the stock. They are the smart money who are accumulating the stock and hoping to profit from the rising price. They probably did their homework very well or have extra valuable information that retail investors do not have.
What happens when it breaks out of the box? You also buy the stock and enjoy the ride up.
Box patterns also appear in 5 min charts. The chart above is the 5 min chart of Apple as it broke out into an all time high. Who thought that Apple could go as high as 153? The 5 min box was a great setup for day traders who were looking for the stock to go higher. When it broke above the box, many day traders were waiting for the breakout and they quickly pressed the buy button. What a tremendous gain it was for Apple.
You might be surprised. But the chart above is a chart of XOP but in the 1 minute timeframe. I'm not kidding. XOP is one of those ETF you can actually trade using the 1 minute chart. The liquidity is good enough to allow you to move shares in and out easily. Take a look and see how XOP formed a nice 1 minute box and moved higher once it broke out of the box. See how just knowing 1 chart pattern can allow you to make money in all time frames?
If the stocks in US is not enough for you, you can actually go to another country's stock market and look for box patterns.
Technical analysis is universal. Charts are a picture of the footprints of market participants. Market participants are guided by two dominant emotions which are fear and greed. Fear and greed among stock market investors and traders are the same whether they are in the NYSE, the FTSE 100, or the NIKKEI in Japan or even in a small South East Asian country like Malaysia.
The chart above is the chart of Malayan Banking Berhad which is the largest market cap stock in Malaysia's stock exchange. It formed a box pattern and traded sideways in a tight consolidation pattern. See how the stock broke out of the box and went higher. Chart patterns truly appear anywhere and in any stock market.
The beauty of chart patterns is what works for bullish trades will often have an opposite pattern for bearish trades. For example, a bottoming tail will have the topping tail as its opposite partner. One is used to find bullish trades while the other is used to find shorting opportunities.
The chart above shows Mattel which is already in a daily downtrend. As the stock dropped, it consolidated awhile and formed a bearish box. Boxes tend to continue the previous direction so a box pattern in a downtrend will usually hint of a breakdown to the downside. Mattel gapped down from the box and the stock suffered a quick drop.
ETM above formed two daily boxes. Whenever the stock drops below a box, it moves lower. See how boxes can work very well for traders who like to short stocks.
Bearish box patterns also appear in 60 min charts. The chart above is the 60 min chart of PAA which is in a downtrend. The stock consolidated for awhile and formed a bearish box. Once the stock price trade below the box, PAA quickly had a sharp drop.
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