What is a flat base pattern?
Why does it work? In the pattern the stock is originally going up. When it hits a major resistance level it is unable to break higher. Yet there is still enough buying pressure for the stock that it is not going to make a new low either. The stock stays at a stalemate, never making a new high or falling down and starting a downtrend. Eventually the stock breaks above old resistance. This signals that the bulls have came out ahead and are continuing to make higher highs. Breakouts above old resistance typically signal the beginning of an uptrend in general.
Target While there is no set target for this pattern, the breakout should cause a giant movement. A 60% increase from price is a normal expectation. Volume Volume should be relatively small during the formation of the flat base pattern. High volume on the breakout is a good sign to look for. It shows that there is a lot of buying pressure backing the recent uptrend. Trading the pattern A professional trader may decide to buy this stock on the breakout and place a stop under the old resistance level. Other Chart Patterns There are a variety of other chart patterns which traders will use in order to determine were a stock will move. Below is a short list of them. Symmetrical Triangle - A bullish continuation pattern Descending Triangle - A bearish pattern that can take weeks or months to form Wolf Wave – An interesting formation that shows buying pressure coming into the market |
