•••••••
COLUMN •••
Graph 2 : Bearish Flag
Graph 3 : Rising Wedge
SOURCE : COMPILED BY THE AUTHOR
SOURCE : COMPILED BY THE AUTHOR
is true for a descending Triangle , where a horizontal support line goes hand in hand with lower highs , which form a downward resistance line . Prices will break in the direction of the horizontal line ( usually in the direction of the preceeding trend ), with the projection of a price level which is determined in the same manner as a symmetrical Triangle . A formation which is very similar to the Triangle , is the Pennant . The formation forms on the same basis as a Triangle , with the difference that the Pennant forms over a much shorter term . The interpretation of the formation , however , remains the same as that of a Triangle .
Flags Flags are regarded as one of the most reliable price formations in technical analyses and normally indicate a continuation of the primary trend . Flags are formed by a small price channel in the opposite direction to the preceeding trend and are usually shorter term formations . Should the price break through the resistance level ( rising primary trend - it is referred to as a Bullish Flag ) or support level ( falling primary trend - it is referred to as a Bearish Flag ), then the preceeding trend will continue . In theory prices should move significantly before a Flag is formed , after which the same movement can be expected should prices break out . The strength of a break-out from a Flag is usually confirmed by an increase in trading volumes and should therefore be analysed in conjunction with one another . Graph 2 is a graphic illustration of a Bearish Flag .
Wedges A Wedge is a formation with the characteristics of both the
The Senwes Scenario team apologize for mistakes in the printed version of this article which crept in during the production process .
Triangle and Flag formation . This formation usually indicates a continuation of the primary trend should the formation form in the opposite direction of the preceeding trend . Should the formation form in an upward trend ( which means the Wedge is downward inclined ), a bullish break-out would indicate a continuation of the upward trend . This is also referred to as a Falling Wedge . The opposite is true in respect of a Rising Wegde in a downward trend ( as graphically illustrated in Graph 3 ). Should a Wedge form in the same direction as the primary trend ( Rising Wedge in a upward market ; Falling Wedge in a downward market ), then the formation indicates a trend reversal . The resistance and support lines which form are not parallel to one another ( as in the case of the Flag ), but they converge . Please note that the lines are also not symmetrical ( as in the case of the Triangle formation ). Contrary to both the Flag and Triangle , a Wedge normally forms over a longer period .
Please note that the Wedge indicates more accurate and successful trading opportunities if it forms contrary to the current trend . Further confirmation is required and increasing volumes on a break-out of the formation are used as a good indication .
CONCLUSION By merely having a reasonable understanding of the above information , you will be a step ahead of the rest . However , it will be most beneficial to combine technical analysis with fundamental analysis in order to make the best possible decision . When the longer term support or resistance line is broken , it can usually be linked to fundamentally changing supply and demand factors .
Technical price graphs offer analysts the opportunity of visually representing the ratio between supply and demand and possible changes in the ratio can be indicated by various price formations . With support and resistance lines as basis , various formations exist which can be analysed to generate possible buying and selling signals . Future articles will focus on the interpretation of these formations .
For more information or to obtain competitive option prices on a large variety of commodities , please contact Susari Geldenhuys at 018 464 7430 or 072 116 9999 or e-mail her at Susari . Geldenhuys @ senwes . co . za
SENWES Scenario • FEB / MAR 2017 39