Trade: High and Tight Flag (‘HTF’) that looks for 100%+ returns.
The last trade we identified like this went up 20% over the next two days before buckling under the weight of its peers – S2R Resources
The HTF pattern is highlighted in black. There are a few key attributes that HTF need to increase the chances of seeing 100%+ returns:
- Strong flag pole; the vertical black line shows the flag pole and needs to have a 75%+ rise. RXP has more than a 100% rise which bodes well for a further 100% rise from today (1 point)
- The flag pole needs to be rapid with little interruption in the rise. RXP meets this requirement. (1 point)
- After the strong rise in the flag pole, there needs to be a reduce in volatility, which can be seen by the black triangle highlighted on RXP. The movement within RXP’s triangle is well condensed, but does not negate the move. Note that the more congestion in the black triangle, the more supportive this is of a further move higher. (1 point)
- When the share price breaks above the black triangle the movement should be a strong, pronounced movement with a significant increase in volume compared to the prior two weeks. RXP shows a volume increase with higher volume in the orange circle (1 point).
- Strong movements from companies in the same industry/sector/theme. RXP sits within the IT Services group. The success of this trade is highly dependent the success of the IT services sector. If this sector remains in a steady rise, that bodes well for RXP to reach the profit target ~100% higher than yesterday’s prices. (1 point)
Interestingly Hills Limited (HIL) also broke out of a HTF formation last Tuesday (4/10/16) and has continued higher. This is a positive, supportive movement for RXP and HIL as often HTF breakouts occur in similar companies – like the many smaller gold mining companies earlier this year.
For a checklist of early warning bells for leading groups and themes watch this video here
Company snapshot: RXP is an IT services company working with large ASX listed companies and government bodies.
Theme Background: Technology companies are performing well as the necessary addition to any evolving industry. The strongest tech companies are those associated with strong leading themes (for example debt/ financing technology).
5/5 points – is a great start.
Statistically, having that support of sister companies (HIL etc.) doubles the likelihood of this chart pattern returning 100%+.
Given the strong movement in ASX-listed IT companies, RXP is a great opportunity for the fast-paced, rapid trader who is diligent on stop losses and identifying theme criteria.
Note: this is not personal advice, conduct your own research and consult your broker to see if this trade is suitable for your own circumstances.