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Safex Scenario ’ s with Susari
SUSARI GELDENHUYS
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INTRODUCTION South African grain prices have been very volatile lately due to uncertainty about what the future holds for the grain market . Future stock levels , imports , hectares planted and yields are but a few of these factors which cause uncertainty ( and therefore price volatility ) in the market . Volatile market conditions will continue this season until there is more certainty about the factors referred to above . The effect of such volatile conditions is that market partici pants find it difficult to make good hedging and investment decisions . However , there are two general aids in the form of fundamental analysis and technical analysis which will contribute to a higher probability of success when such decisions are considered .
Fundamental analysis and the basis of technical analysis were discussed in previous articles . The last article focused on the basic analysis of different price formations , more specifically on the determination of support and resistance levels . This article will expand on it further by analysing various price formations .
PRICE FORMATIONS Price formations can be defined as a graphic price movement pattern which is determined by various support and resistance lines . There is a high probability of success when the formations are recognised and interpreted correctly . The most generally used
FEB / MAR 2017 • SENWES Scenario
Graph 1 : Symmetrical Triangle
formations , which usually indicate a continuation of the preceeding trend , include : Triangles , Flags en Wedges .
Triangles Regarded as one of the most simplistic price formations , Triangles are easily recognisable with clear future price objectives . The price targets are mainly determined by measuring the length and the widest point of the triangle and to apply it to the break-out point ( from the formation ) in order to determine the next support ( downward break-out point ) or resistance ( upward break-out point ). The formation forms over a medium term and could even form over a long term . Three types of Triangles can form , namely symmetric , ascending and descending Triangles .
i ) Symmetrical A symmetrical Triangle is formed
SOURCE : COMPILED BY THE AUTHOR
by two lines converging towards each other , with prices testing each line at least twice . Please note that it is generally accepted that a Triangle which tests the support and resistance line more often , can be interpreted more accurately . Prices form lower highs and higher lows in such a manner that the support and resistance lines ensure the symmetrical form of the Triangle . The symmetrical Triangle is not generally used in the South African agri-market . Graph 1 is a graphic representation of a symmetrical Triangle .
ii ) Ascending / Descending The ascending and descending Triangle formation is similar to the symmetrical Triangle , the only difference being that the support or resistance line is horizontal . In the case of an ascending Triangle , a horizontal resistance line forms , with higher lows forming an upward support line . The opposite
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Formations which normally indicate a trend reversal will be discussed in the next article .