Each morning as I fire up my computer, one of my go-to rituals is to peruse my stock charts, much like a child anticipating the joy of an ice cream treat.
There’s something exhilarating about scanning through various setups, contemplating the strategies I’ll employ in my trading for the day. It’s as if the entire world of opportunities unfolds before my eyes.
When I dive into technical analysis—the art of deciphering stock charts—I’m trying to make sense of the barrage of price data that traders and analysts deal with each second.
Now, analysts can easily overcomplicate technical analysis with endless methodologies for interpreting price data. It’s a vast ocean to navigate.
Yet, I must confess, I don’t need 90% of it. Pattern recognition has proven invaluable in my analysis of stock charts.
Today, I want to introduce you to three patterns that I regularly employ in my VIP Trading Research Service, Technical Pattern Profits, to harness profits regardless of whether the market—or the specific stocks I trade—are rising or falling.
### Unveiling the “World Record Pattern”
First up is the World Record Pattern, also known as the bull flag pattern.
This phenomenon occurs when a stock experiences a sharp upward movement (the “flagpole”), followed by a brief consolidation phase. Once the stock emerges from this consolidation, it’s poised to climb higher by the same magnitude as the flagpole.
To give you a concrete example, let’s look at Doximity (NYSE: DOCS). In August, the stock leaped from around $26 to $37 within a single day, forming an $11 high flagpole. After catching its breath for a few days, it forged ahead.
To determine a price target, you add the height of the flagpole to the breakout point. In this instance, we anticipated the stock reaching $48 ($37 + $11). Notably, two months post-breakout, Doximity reached $45.
On October 23, I advised closing the position, locking in a 45% options gain in just 40 days.
No doubt, the breakout of the World Record Pattern is a crystalline cue for when a trader should buy. But what about knowing when it’s time to sell?
### Meet “Old Reliable”
The head and shoulders pattern, fondly referred to as “Old Reliable,” has a bearish nature. It’s an excellent tool to strip away emotional biases when deciding to sell.
It’s not called Old Reliable for nothing—this pattern boasts a remarkable 83% accuracy in signaling a stock’s impending decline.
The head and shoulders pattern consists of three peaks. The middle peak, or the head, is taller than the first peak, the left shoulder. However, the third peak, the right shoulder, doesn’t quite reach the head’s height, and the trading volume diminishes. This indicates a waning buying interest.
When the stock breaches the “neckline,” which is the line connecting the lows of the left and right shoulders, it typically trends downward, signaling that it’s time to sell.
Take a look at Viatris’ (Nasdaq: VTRS) stock chart to see this pattern in action. In this unusual case, there were two right shoulders, yet the stock unmistakably declined after breaking the neckline.
### Introducing “Power Channels”
Understanding Power Channels, or ascending channels, requires familiarity with resistance and support lines. In essence, these terms refer to price levels that act as barriers, containing the stock within a specific trading range.
The resistance line marks the price level that the stock struggles to surpass, serving as its “ceiling.” Conversely, the support line is the floor where traders perceive the stock as undervalued, prompting them to buy.
Here’s an example featuring Taylor Morrison Home Corp. (NYSE: TMHC)…
On October 24, I alerted my subscribers, highlighting that “The stock is bouncing off the bottom of its channel… Let’s seize the opportunity, anticipating a rise to the top of the channel in the short term.” I suggested an options play alongside this strategy.
Just a mere three weeks later, I issued another alert indicating, “[The shares have] reached the top of the upward channel… That’s our cue to take profits and move on.”
Subscribers to Technical Pattern Profits were able to capitalize on a 49% gain within just 19 days through options.
It’s clear, isn’t it? Technical analysis isn’t daunting when you know which patterns to seek and can spot them on your trading screen. They can help you manage the emotional rollercoaster of investing and improve your chances of profiting, no matter which way the market—or a particular stock—is headed.
