Chart patterns in HPCL and Tata Chemicals

HPCL - Downside Breakout pattern

What is a Downside breakout pattern?

A downside breakout pattern indicates a continuation of the main trend. When the price hits the support level for the first time, buying emerges. When the price hits the same support level for the second time, the support becomes an important level. On the third strike, if the price breaks out on the downside through the support line—it signals the start of the downtrend.

Pattern Implications

The downside breakout pattern indicates that the major support is weakening. Once the stock breaks the support zone on the downside and the price closes below the horizontal line—it signals the start of a downtrend. 

Preferred Strategy

A trader can initiate a bear put spread strategy based on this technical pattern. In this strategy, a trader can buy an ATM (at-the-money) put option and sell a far away OTM (out-of-the-money) put option, both belonging to the same expiry. The sell OTM put option acts as a hedge to the buy ATM put option, thereby capping a trader’s profit or loss to a certain level.

Tata Chemicals - Megaphone Top pattern

What is a Megaphone Top pattern?

The megaphone top pattern has five distinct swings. It is a pattern which consists of a minimum of two higher highs and two lower lows. The two trend lines connecting the highs and lows create a shape that appears like a megaphone or an inverted symmetrical triangle. In this pattern, the bulls and bears fight to take control of the stock, wherein the bulls take the price higher, and the bears pull down the stock, due to which lower lows are formed. 

Pattern Implications

A trend reversal is expected when the price breaks below the lower trendline and closes below it. A close below the lower trendline signifies a more decisive bearish move.

Preferred Strategy

A trader can initiate a bear put spread strategy based on this technical pattern. In this strategy, a trader can buy an ATM (at-the-money) put option and sell a far away OTM (out-of-the-money) put option, both belonging to the same expiry. The sell OTM put option acts as a hedge to the buy ATM put option, thereby capping a trader’s profit or loss to a certain level.

Disclaimer

Derivatives trading must be done only by traders who fully understand the risks associated with them and strictly apply risk mechanisms like stop-losses. 

We do not recommend any particular stock. The stock names mentioned in this article are purely for showing how to do analysis. Take your own decision before investing.