What is overhead supply?

Overhead supply is a chart pattern that traders will typically try to avoid. It signals that the stock is likely not to make any big advancement in the near future.

What happens is people buy the stock during a long bullish uptrend. Then selling is introduced to the stock testing the rally and causing it to go down.

Investors who bought this stock during the uptrend and held it through the downtrend are felling bad about that decision. This causes them to want to sell at the first opportunity to break even.

That keeps the stock from making any meaningful advances in the future. It also keeps big investors who know what the pattern is away.

Trading the pattern If the stock is traded a lot it might just break out of this pattern quickly and form an uptrend. In general, however this pattern can last for months or even years. Most traders will avoid them.

It can be a good stock to watch if you like the company and believe in its future, but if you don’t wait for any signals to appear you could have your money tied up in a position that is not making any money for a very long time.

Other Chart Patterns

Knowing how other chart patterns work can help you find opportunities as they arise. Here are a few different chart patterns to watch.

Cup and Handle - This is a Bullish chart pattern which can take a while to form.

Bullish Rectangle Pattern - Probably the most common chart pattern out there.

Base on Base - A chart pattern consisting of many rectangle patterns