CA Rachana Ranade. Blog

Among the many chart patterns used in technical analysis, breakouts often provide some of the most actionable trading opportunities. One particularly powerful setup is the Descending Parallel Channel Breakout on the Upside. While the channel itself reflects a period of controlled selling pressure, the breakout signals a shift in momentum where buyers regain control, often leading to strong upward moves.

A descending parallel channel forms when the price moves within two downward-sloping, parallel trendlines. While it may look bearish at first glance, a breakout above the channel often signals the end of the downtrend and the beginning of a potential bullish rally.

What is a Descending Parallel Channel?

Structure: The price oscillates between two parallel, downward-sloping lines. The upper line acts as dynamic resistance, while the lower line acts as dynamic support.

Psychology: Sellers push the price lower within the channel, but each successive low lacks strong follow-through. When buyers finally overpower sellers, the price breaks above the upper boundary of the channel.

Breakout: A breakout occurs when the price closes convincingly above the upper channel line, showing a shift in sentiment from bearish to bullish.

How to Trade a Descending Parallel Channel Breakout

Entry Point

Enter once the price closes above the upper boundary of the channel with strong momentum.
Look for high volume and a solid candle close above the resistance line (not just a wick)
Conservative traders can enter partially on the breakout and add more after a confirmation candle.

Understanding the Retest of a Breakout

After breaking above the channel, the price often retests the breakout level (the upper trendline). This retest is a strong validation of the breakout.

How to use the retest in your strategy:

· Wait for the price to pull back to the broken channel resistance (now acting as support).

· Look for bullish reversal patterns such as a hammer, bullish engulfing, or strong rejection wicks.

· Enter the trade if the support holds and the price resumes upward momentum.

This retest entry provides a more favourable risk-to-reward ratio and helps avoid false breakouts.

Target Price: There are several ways to set profit targets after a breakout:

Channel Height Method: Measure the vertical distance between the upper and lower boundaries of the channel. Add this height to the breakout point to project a price target.
Fibonacci Extensions: Apply Fibonacci levels from the recent swing low to swing high to identify logical resistance zones.
Previous Swing Highs: Old resistance levels outside the channel often act as natural targets.

Stop-Loss Placement

Place a stop-loss just below the breakout level (upper trendline of the channel).
A tighter option is below the low of the breakout candle.
For more conservative risk management, use the most recent swing low inside the channel.

Additional Tips

Combine the channel breakout with momentum indicators like RSI or MACD (bullish crossover).
Breakouts are stronger when they align with the broader market trend or sector strength.
Maintain a minimum risk-reward ratio of 1:2 to ensure trades are worthwhile.

Charting Exercise: Open a daily chart and identify a stock trading within a descending channel. Watch for a breakout above the upper trendline. Mark the breakout level, stop-loss, and potential price targets.

Homework: Check the following two stocks and select the one that fits the horizontal resistance breakout pattern.

1. UNO Minda Ltd. (UNOMINDA)

2. Adani Total Gas Ltd. (ATGL)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

Matering the Descending Channel Breakout Strategy

Chart patterns provide traders with valuable clues about potential price movements while doing technical analysis. One of the most reliable continuation patterns is the Cup and Handle formation. Understanding the Cup and Handle pattern can help you anticipate bullish breakouts and plan your entries with precision.

A Cup and Handle is a bullish chart pattern that resembles the shape of a tea cup. It usually appears after a strong uptrend, consolidates in the shape of a rounded bottom (the cup), and forms a smaller downward drift (the handle) before breaking out to new highs.

Anatomy of the Cup and Handle Pattern

Cup Formation: The cup resembles a “U” shape and signifies a period of consolidation after a bullish trend. The price gradually declines and then rises back to the previous high, forming a rounded base. This shows that selling pressure has diminished, and buyers are gradually regaining control.

Handle Formation: Once the cup is complete, a slight pullback forms the handle. This usually appears as a downward or sideways drift, often contained within a small descending channel or wedge. The handle is a final shakeout before the breakout.

Breakout: A breakout occurs when the price closes above the resistance formed at the top of the cup on increased volume. This confirms the pattern and typically leads to a renewed bullish move.

How to Trade the Cup and Handle Pattern

Entry Point

Enter the trade when the price breaks above the handle’s resistance line on strong volume.
A high-quality breakout typically involves a decisive close above the resistance (not just a wick) and ideally comes with volume confirmation.
Conservative traders may choose to wait for a confirmation candle above the resistance to reduce the risk of a false breakout. For them another way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.

Target Price

There are a couple of standard methods to project your profit target:

Chart-Based Target:

Measure the depth of the cup (from the bottom to the resistance level).
Add this height to the breakout point.

Target = Breakout Level + (Resistance - Cup Low)

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical resistance levels or profit-taking zones above the breakout.

Stop-Loss Placement

Place your stop-loss below the handle’s low to protect against failed breakouts.
A more aggressive stop could be just below the breakout candle’s low for tighter risk control.
Avoid placing stops too close, especially if the handle formed on low volume, as minor whipsaws are common.

Additional Tips

Ensure the cup has a rounded bottom rather than a sharp V-shape — this signals healthier accumulation.
The longer the cup formation, the more significant the breakout tends to be.
Use supporting indicators like volume surge, RSI breakout, or MACD crossover to confirm momentum.
These patterns are more reliable in bullish market conditions or strong sectors.

Charting Exercise: Switch to a daily chart and start scanning for Cup and Handle formations. Clearly mark:

·Cup bottom and rim (resistance)

· Handle structure (a small “U” or descending channel or wedge)

· Potential Breakout, Entry, Stop-loss, and Target zones

Use chart tools to draw the neckline of the cup and the upper boundary of the handle. Measure the depth of the cup to estimate your target price after breakout. Watch for volume confirmation to validate the breakout.

Homework

Look at the following stocks and identify which one shows signs of a developing or confirmed Cup and Handle pattern:

1. Sundram Fasteners Ltd. (SUNDRMFAST)

1. FSN E-Commerce Ventures Ltd. (NYKAA)

Study the price action, draw the cup and handle zones, and see if the breakout is supported by volume.

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

Exploring the Cup and Handle Pattern

Learning chart patterns enable traders to anticipate potential trend reversals and structure their trades accordingly. One of the most reliable bearish reversal patterns is the Head and Shoulders. Identifying this formation early can help traders prepare for downward price movements and avoid long positions near potential market tops.

A Head and Shoulders is a bearish reversal pattern that resembles a peak (shoulder), followed by a higher peak (head), and then another lower peak (shoulder). It typically forms after a sustained uptrend, indicating that buying momentum is weakening and a bearish reversal could be on the horizon.

Anatomy of the Head and Shoulders Pattern

Left Shoulder: The pattern begins with a price rise followed by a temporary pullback. This forms the first (left) shoulder and signals initial resistance.

Head: The price then rallies to a new high, surpassing the previous peak, before pulling back again. This higher high forms the head of the pattern, often accompanied by lower volume.

Right Shoulder: A third rally occurs but fails to break the high of the head, forming a lower peak — the right shoulder. This reflects a loss of bullish momentum and increasing seller strength.

Neckline and Breakdown: The neckline is drawn by connecting the lows between the shoulders and the head. A breakdown occurs when the price closes below this neckline with rising volume, confirming the pattern and signalling a potential trend reversal from bullish to bearish.

How to Trade the Head and Shoulders Pattern

Entry Point

· Enter a short position when the price breaks and closes below the neckline with a noticeable increase in volume.

· Alternatively, wait for a retest of the neckline after the breakdown. Enter when the retest holds and the price starts to decline again.

· You may also split your position — for instance, 50% on the initial breakdown and 50% after a confirmed retest.

Target Price: Two common approaches to estimate downside targets:

Chart-Based Target:

· Measure the distance from the top of the head to the neckline.

· Subtract this distance from the neckline level to project the downside target.

· Target = Neckline – (Head – Neckline)

Fibonacci Retracement or Pivot Points:

· These tools help validate your target and highlight potential support zones during the decline.

Stop-Loss Placement

· Place the stop-loss just above the right shoulder to safeguard against failed breakdowns.

· If entering after a neckline retest, a tighter stop above the neckline is reasonable.

· Be cautious of overly tight stops in choppy markets to avoid premature exits.

Additional Tips

· Head and Shoulders patterns are most effective after a strong uptrend — in sideways markets, the reliability decreases.

· Volume generally declines from the left shoulder to the head and rises significantly on the breakdown below the neckline.

· Use confirmation from indicators such as RSI divergence (lower highs on RSI while price makes higher highs) or a bearish MACD crossover.

· A symmetrical and well-formed pattern with a clearly defined neckline increases the probability of success.

Charting Exercise: Switch to a daily chart and scan for potential Head and Shoulders formations. Clearly mark:

· Left Shoulder, Head, and Right Shoulder

· Neckline (support between the two troughs)

· Entry point (breakdown candle)

· Target and stop-loss levels

Use horizontal or trend lines to mark the neckline. Measure the vertical distance from the head to the neckline and project it downwards to estimate a conservative target. Confirm the breakdown with a spike in volume.

Homework: Study the following stocks and check if a Head and Shoulders pattern is forming or has recently completed:

1. Kalpataru Projects International Ltd. (KPIL)

2. Persistent Systems Ltd. (PERSISTENT)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

When the Trend Peaks: Decoding the Head and Shoulders Pattern

Chart patterns are essential tools in the arsenal of any technical trader. Among the most powerful continuation patterns is the Flag and Pole formation, which signals the potential for a strong move in the direction of the existing trend. Recognizing this pattern in real-time can help you capture quick gains during trending markets.

The Flag and Pole is a bullish or bearish continuation pattern. It starts with a sharp price move called the pole, followed by a brief consolidation phase that slopes against the prevailing trend (the flag). When the price breaks out of the flag, the trend often resumes with renewed strength.

Anatomy of the Flag and Pole Pattern

Pole Formation: The pole represents a steep and rapid price movement, either upward (bullish flag) or downward (bearish flag). This move is often driven by high volume, strong momentum, or a significant news event.

Flag Formation: After the initial surge, price enters a consolidation phase that resembles a parallelogram or a small channel sloping against the trend. This flag usually forms on lower volume and reflects a temporary pause or profit booking.

Breakout: The pattern is confirmed when the price breaks out of the flag in the direction of the pole (i.e., upward in a bullish flag or downward in a bearish flag). Ideally, this breakout should be accompanied by a volume spike to confirm renewed interest from buyers or sellers.

How to Trade the Flag and Pole Pattern

Entry Point

· Enter the trade when the price breaks out of the flag channel in the direction of the pole on strong volume.

· A bullish flag breakout occurs when the price closes above the flag’s upper boundary.

· A bearish flag breakout occurs when the price closes below the flag’s lower boundary.

· Conservative traders may wait for a confirmation candle to reduce the risk of false breakouts. Alternatively, you can scale in: 50% on breakout and 50% after confirmation.

Target Price

There are two common methods to estimate the price target:

Pole Projection Method:

· Measure the height of the pole.

· Add (for bullish) or subtract (for bearish) this value from the breakout point.

· Target = Breakout Point ± Pole Height

Fibonacci Extension Levels:

Fibonacci extensions and/or pivot levels can help identify logical resistance/support zones for profit-taking.

Stop-Loss Placement

· Place your stop-loss just below the lower boundary of the flag for a bullish flag, or just above the upper boundary for a bearish flag.

· Alternatively, for tighter risk, use the low/high of the breakout candle as your stop-loss.

· Ensure there’s enough room for price fluctuations to avoid premature stop-outs due to minor noise.

Additional Tips

· Volume Surge during the pole formation and at breakout is key. Lack of volume during the flag formation is normal.

· Flags typically last from a few days to a few weeks, depending on the time frame and market context.

· The steeper and cleaner the pole, the more reliable the pattern.

· Combine with indicators like RSI, MACD, or moving averages to validate breakout strength.

· Works well during strong trending phases, especially after earnings, sectoral rallies, or macro news.

Charting Exercise: Pull up a weekly chart and identify the following:

· The Pole (steep price move)

· The Flag (consolidation channel)

· Breakout point

· Estimate your Entry, Stop-loss, and Target

Use your charting tools to draw the parallel flag channel and project the pole height from the breakout. Watch closely for volume confirmation during the breakout candle.

Homework

Analyze the following stocks to spot any emerging or completed Flag and Pole patterns:

1. PNC Infratech Ltd. (PNCINFRA)

1. GE Vernova T&D India Ltd. (GVT&D)

Study the price action, draw the pattern, and see if the breakout is supported by volume.

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

Understanding the Flag and Pole Pattern

In technical analysis, certain chart patterns stand out for their reliability in predicting trend reversals. One such powerful bullish reversal pattern is the Inverse Head and Shoulders. Let’s understanding this pattern as it may provide a significant edge, especially when spotting a potential shift from a downtrend to an uptrend.

The Inverse Head and Shoulders pattern typically forms after a prolonged downtrend, signalling that the selling pressure is waning and a bullish reversal may be on the horizon.

Pattern Anatomy

1. Left Shoulder: Formed when the price drops to a trough and then rallies.

2. Head: A deeper decline follows, creating a lower low, then another rally.

3. Right Shoulder: Price declines again but forms a higher low, followed by another upward move.

4. Neckline (Resistance): The highs of the rallies after the left shoulder and head create a horizontal or slightly sloped resistance line. A breakout above this neckline confirms the pattern.

Breakout and Retest: Key Confirmation

The pattern completes when price breaks above the neckline — ideally on increased volume, signalling a shift in market sentiment from bearish to bullish.

Retest: A Second Chance Entry

After the breakout, prices often retrace back to the neckline, testing it as a new support level. This retest offers a lower-risk entry opportunity:

A successful retest (where the neckline holds and price bounces) adds confidence to the reversal.
Traders can enter on a bullish candlestick confirmation after the retest.
This is especially helpful in filtering out false breakouts or low-volume moves.

How to Trade an Inverse Head and Shoulders Pattern

Entry Point

Enter the trade when the price closes above the neckline with solid volume.
Look for a bullish breakout candle that holds above the neckline, avoiding false breakouts with only wicks or intraday spikes.
A balanced approach: enter 50% at breakout, and the remaining 50% after a confirmation candle to reduce risk.
There is another chance to enter the trade if there is a successful retest of the breakout.

Target Price: Use these methods to project the expected price move:

Chart-Based Target:

Measure the vertical distance from the head (lowest point) to the neckline.
Add that distance to the breakout point.
Target = Neckline + (Neckline - Head)

Alternative Methods:

Apply Fibonacci Extensions to project targets.
Use Pivot Points to identify likely resistance levels post-breakout.

Stop-Loss Placement

A stop-loss can be placed just below the right shoulder or even below the head, depending on risk tolerance.
A tighter stop-loss may be the low of the breakout candle or last swing low before breakout.

Additional Tips

Preceding Trend: This pattern must be preceded by a visible downtrend — it's a reversal, not a continuation pattern.
Volume Confirmation: A breakout with rising volume confirms stronger buying interest.
Indicators: Use RSI or MACD to support the bullish reversal — look for bullish divergence or positive crossovers.
Patience Pays: Let the full pattern form. Enter only after the neckline is breached with conviction.
Macro View: Align your trades with the broader market trend for increased reliability.

Charting Exercise

Today, switch to a daily chart and start scanning for Inverse Head and Shoulders formations. Clearly mark:

Left Shoulder, Head, Right Shoulder

Neckline
Potential Breakout, Entry, Stop-loss, and Target zones.

Homework: Review the charts of the following stocks and evaluate if an inverse head and shoulders pattern is emerging:

1. Kajaria Ceramics Ltd. (KAJARIACER)

2. Aavas Financiers Ltd. (AAVAS)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

Unlocking Reversals: The Inverse Head and Shoulders Pattern

Chart patterns are a vital part of technical analysis, helping traders anticipate potential reversals or continuations in price. One of the most commonly observed reversal patterns is the Double Top. Recognizing this pattern early can help traders avoid long positions near market tops and prepare for potential downward moves.

A Double Top is a bearish reversal pattern that looks like the letter “M.” It typically forms after an extended uptrend, signalling that buying pressure is weakening and a potential trend reversal to the downside may occur.

Anatomy of the Double Top Pattern

First Peak: The pattern begins with a strong upward move that reaches a high (the first peak) before pulling back. This initial peak marks a level of resistance where sellers begin to emerge.

Second Peak: After the pullback, buyers attempt to push prices higher again, but the rally stalls near the level of the first peak, creating a second top. This second failure to break above resistance shows diminishing bullish strength.

Neckline and Breakdown: The low point between the two peaks is known as the neckline. A breakdown occurs when the price closes below this neckline on increased volume, confirming the Double Top pattern and indicating a potential reversal from bullish to bearish trend.

How to Trade the Double Top Pattern

Entry Point

Enter a short position when the price breaks and closes below the neckline with significant volume.
A more conservative approach is to wait for a retest of the neckline after the breakdown, entering when the retest fails to push the price back above it.
Partial entry can also be used: 50% on the initial breakdown and 50% after a failed retest.

Target Price: Two main techniques are commonly used to estimate the price target:

Chart-Based Target:

Measure the height from the peaks to the neckline.
Subtract this distance from the neckline to project the target level.
Target = Neckline – (Top – Neckline)

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical support levels or profit-taking zones above the breakout.

Stop-Loss Placement

Place the stop-loss just above the second peak to protect against failed breakdowns.
Alternatively, a tighter stop can be placed just above the neckline if you entered on a retest.
Avoid overly tight stops in volatile markets as minor pullbacks can trigger premature exits.

Additional Tips

Double Top patterns are more effective after a sustained uptrend — they lose significance in choppy or sideways markets.
Volume should typically increase on the breakdown and decrease during the formation of the second peak.
Use additional indicators like RSI divergence (lower highs on RSI vs. higher highs on price) or MACD bearish crossovers to confirm weakness.
Look for a rounded or flat second top rather than a sharp spike — this shows sellers consistently rejecting higher prices.

Charting Exercise: Switch to a daily chart and scan for potential Double Top formations. Clearly mark:

First and second peaks
Neckline (support zone between the two tops)
Entry point (breakdown candle)
Target and Stop-loss levels

Use charting tools to draw horizontal lines for the peaks and neckline. Measure the distance from peak to neckline to project a conservative target after breakdown. Confirm with volume analysis to validate the setup.

Homework: Study the following stocks and check if a Double Top pattern is forming or has already played out:

1. Fertilisers and Chemicals Travancore Ltd. (FACT)

2. Tata Consumer Products Ltd. (TATACONSUM)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

Spotting the Double Top Pattern

In the world of technical analysis, breakouts/breakdowns are powerful signals that can help traders anticipate major market moves. One of the most significant patterns for identifying potential short-selling or downside opportunities is the Horizontal Support Breakdown.

A horizontal support breakdown occurs when the price of a stock breaks below a well-defined support level that has repeatedly prevented the price from falling further.

Support Level: A support level is where buying pressure historically halts price declines. When price repeatedly fails to break below a flat level, it forms horizontal support, seen as a straight line on the chart.

Breakdown: A breakdown happens when the price convincingly closes below this support level, signalling a potential shift in market sentiment from bullish or neutral to bearish.

How to Trade a Horizontal Support Breakdown

Entry Point

Enter the trade once the price closes below the horizontal support on strong volume.
A confirmed breakdown typically includes above-average volume and a decisive candle body (not just a wick below support).
A better approach can be to enter 50% of your quantity at breakdown and 50% after a confirmation candle.

Understanding the Retest of a Breakdown

A retest happens when the price, after breaking below support, pulls back to test that former support level—now acting as resistance.

This is a healthy market behaviour and adds credibility to the breakdown.

How to use the retest in your strategy:

Wait for the price to pull back to the breakdown level.
Look for bearish reversal patterns (e.g., shooting star, bearish engulfing) or resistance-holding price action near the breakdown zone.
Enter the trade if the level holds and price resumes downward movement.
This provides a better risk-reward entry and helps filter out false breakdowns.

Target Price: There are a few ways to estimate the target price:

Using chart:

Measure the height of the prior range (from support to resistance).
Subtract this height to the breakdown point. Target = Support Level - (Resistance - Support)

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical support levels or profit-taking zones above the breakout.

Stop-Loss Placement

Place a stop-loss just above the breakdown level or above the most recent swing high.
A tighter stop-loss can be placed at the high point of the breakdown candle.

Additional Tips

Combine support breakdown patterns with momentum indicators like RSI or MACD to confirm bearish strength.
Look for breakdowns occurring in weak market trends or sectors showing relative underperformance.
Always use a risk-reward ratio of at least 1:2 to make your trades worthwhile.

Charting Exercise: Open a daily chart and do your own technical analysis. Identify a stock showing a clear horizontal support level and then breakdown from the same. Mark these levels along with price target and stop-loss.

Homework: Check the following two stocks and select the one that fits the horizontal resistance breakout pattern.

1. Five-Star Business Finance Ltd. (FIVESTAR)

2. ITC Ltd. (ITC)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

Understanding Horizontal Support Breakdown

In the world of technical analysis, breakouts are among the most powerful patterns traders use to identify potential trading opportunities. One of the most reliable and widely observed breakout patterns is the Horizontal Resistance Breakout. Whether you're a beginner or a seasoned trader, understanding this setup can significantly enhance your trading edge.

A horizontal resistance breakout occurs when the price of a financial instrument breaks above a well-defined resistance level that has repeatedly prevented the price from moving higher.

Resistance Level: A resistance level is where selling pressure halts price advances. When price repeatedly fails to break a flat level, it forms horizontal resistance, seen as a straight line on the chart.

Breakout: A breakout happens when the price convincingly closes above this resistance level, signalling a potential shift in market sentiment from bearish or neutral to bullish.

How to Trade a Horizontal Resistance Breakout

Entry Point

Enter the trade once the price closes above the horizontal resistance on strong volume.
A confirmed breakout typically includes above-average volume and a decisive candle body (not just a wick above resistance).
A better way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.

Understanding the Retest of a Breakout

A retest happens when the price, after breaking above resistance, pulls back to test that former resistance level—now acting as support.

This is a healthy market behavior and adds credibility to the breakout.

How to use the retest in your strategy:

Wait for the price to pull back to the breakout level.
Look for bullish reversal patterns (e.g., hammer, bullish engulfing) or support-holding price action near the breakout zone.
Enter the trade if the level holds and price resumes upward movement.
This provides a better risk-reward entry and confirms the breakout isn’t a false breakout.

Target Price: There are a few ways to estimate the target price:

Using chart:

Measure the height of the prior range (from support to resistance).
Add this height to the breakout point. Target = Resistance Level + (Resistance - Support)

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical resistance levels or profit-taking zones above the breakout

Stop-Loss Placement

Place a stop-loss just below the breakout level or below the most recent swing low.
A tighter stop-loss can be placed at the low point of the breakout candle.

Additional Tips

Combine resistance breakout patterns with momentum indicators like RSI or MACD to strengthen your conviction.
Look for breakouts occurring in strong market trends or sectors showing relative strength.
Always use a risk-reward ratio of at least 1:2 to make your trades worthwhile.

Charting Exercise: Open a weekly chart and do your own technical analysis. Identify stock showing a clear horizontal resistance level and then breakout from the same. Mark these levels along with price target and stoploss.

Homework: Check the following two stocks and select the one that fits the horizontal resistance breakout pattern.

1. Piramal Pharma Ltd. (PPLPHARMA)

2. Syrma SGS Technology Ltd. (SYRMA)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

Understanding Horizontal Resistance Breakouts

A horizontal resistance breakout occurs when the price of a financial instrument breaks above a well-defined resistance level that has repeatedly prevented the price from moving higher.

Breakout: A breakout happens when the price convincingly closes above this resistance level, signalling a potential shift in market sentiment from bearish or neutral to bullish.

How to Trade a Horizontal Resistance Breakout

Enter the trade once the price closes above the horizontal resistance on strong volume.
A confirmed breakout typically includes above-average volume and a decisive candle body (not just a wick above resistance).
A better way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.

Understanding the Retest of a Breakout

A retest happens when the price, after breaking above resistance, pulls back to test that former resistance level—now acting as support.

This is a healthy market behavior and adds credibility to the breakout

How to use the retest in your strategy:

Wait for the price to pull back to the breakout level.
Look for bullish reversal patterns (e.g., hammer, bullish engulfing) or support-holding price action near the breakout zone.
Enter the trade if the level holds and price resumes upward movement.
This provides a better risk-reward entry and confirms the breakout isn’t a false breakout.

Target Price: There are a few ways to estimate the target price:

Using chart:

Measure the height of the prior range (from support to resistance).
Add this height to the breakout point. Target = Resistance Level + (Resistance - Support)

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical resistance levels or profit-taking zones above the breakout.

Stop-Loss Placement

Place a stop-loss just below the breakout level or below the most recent swing low.
A tighter stop-loss can be placed at the low point of the breakout candle.

Additional Tips

Combine resistance breakout patterns with momentum indicators like RSI or MACD to strengthen your conviction.
Look for breakouts occurring in strong market trends or sectors showing relative strength.
Always use a risk-reward ratio of at least 1:2 to make your trades worthwhile.

Charting Exercise: Open a daily chart and do your own technical analysis. Identify stock showing a clear horizontal resistance level and then breakout from the same. Mark these levels along with price target and stoploss.

Homework: Check the following two stocks and select the one that fits the horizontal resistance breakout pattern.

1. Tata Motors Ltd. (TATAMOTORS)

2. Hero MotoCorp Ltd. (HEROMOTOCO)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Comments (0) details

Understanding Horizontal Resistance Breakouts

Blog

Open an account with

Open an account with

Download our apps