I have posted this chart of SA based oil and gas explorer Beach Energy to illustrate how valuable the well-known “Head and Shoulders Pattern” can be in assisting retail investors to more optimally time their investments, heralding as it often does a change in trend.
It is a three-peak pattern, with the central thrust pre-eminent, forming the head. It marks a transition in overall eagerness between buyers and sellers; in this it is similar to double top and double bottom patterns.
Although easily recognized retrospectively, the changes may be easily overlooked during evolution. Furthermore trending will often pause, even forming a head and shoulder pattern, only for another thrust higher or lower to emerge subsequently.
You do not need to be a qualified technical analyst to identify them. Although they are easily seen, even financial experts often discount their importance, and wait for the subsequent emergence of the new trend. Acting early, in perhaps a contrarian manner, may prove to be a superior stop-loss strategy when selling, or result in a lower average entry price when buying.
This is a daily candlestick chart extending back over an 18 month period. As you can see, this is a time-frame that can be profitable for retail investors.
The price range has been between 51 cents and $1.16
There have been two head and shoulder patterns, the first in December 2016 when an head and shoulder pattern formed, with a peak price of 94 cents, preceding the subsequent down trend.
The second was an inverted head and shoulder pattern formed in June/July 2017 with a low of 56 cents, prior to the emergence of a strong uptrend.
It should be noted that although the share-price has pulled back somewhat from its high to form a lower high and then a lower low, another lower high and lower low will need to form before one can declare a downtrend. It would seem likely that there could be support for the share-price at $1. At present the uptrend is intact.
I have no shares in Beach Energy. Those readers interested in it are urged to do their own research, and to obtain advice relevant to their situation from their usual financial adviser or stock-broker.