Past profitable price behaviour may alert investors to look for similar opportunities in the future. But circumstances never remain static, so it is not a strategy on which one should rely.
The daily chart of financial giant AMP could illustrate this. For the 12 month span the share price has been confined in a range between $5 and $6. In this time, range traders would have encountered five profitable impulsive moves higher to maximize capital gains. These are marked above.
These were as follows:
- Between 25/11/15 and 01/12/15 there was a 32 cent rise over 6 calendar days.
- Between 18/12/15 and 30/12/15 there was a 44 cent rise over 12 days.
- Between 05/03/16 and 18/03/16 there was a 66 cent gain in 16 days
- Between 12/04/16 and 22/04/16 there was a 51 cent gain in 10 days.
- The last such sustained impulsive move was the strongest, and it occurred between 07/07/16 and 25/07/16. It lasted 18 days and yielded a 74 cent increase.
Of course such figures illustrate a potential for profit only.
At present the RSI is low bordering on the oversold zone, and the share-price is languishing close to support at $5.
It is tempting to speculate on the emergence of another profitable impulsive move, but those with a trading bent should wait for this to occur, even if it means forgoing some potential profit.
As always readers are advised not to rely on chart appearances alone, but to first obtain qualified financial advice.
The writer is a long-term holder of shares in AMP Limited.