So, for those of you who actually heed charting advice and do homework, where do we go from here?
Let's break down what has happened over the past few months, and see what will happen going forward:
- Trend: In order to qualify as a continuation pattern, an established trend should exist. However, because the descending triangle is definitely a bearish pattern, the length and duration of the current trend is not as important. The robustness of the formation is paramount. CHECK
- Lower Horizontal Line: At least 2 reaction lows are required to form the lower horizontal line. The lows do not have to be exact, but should be within reasonable proximity of each other. There should be some distance separating the lows and a reaction high between them. WE ARE ON #5 NOW, SO CHECK
- Upper Descending Trend Line: At least two reaction highs are required to form the upper descending trend line. These reaction highs should be successively lower and there should be some distance between the highs. If a more recent reaction high is equal to or greater than the previous reaction high, then the descending triangle is not valid. 3 REACTION HIGHER-LOWS AS SHOWN IN CHART ABOVE. CHECK
- Duration: The length of the pattern can range from a few weeks to many months, with the average pattern lasting from 1-3 months. COMING INTO MONTH 4 NOW, SO A BIT OVERDUE. CHECK
- Volume: As the pattern develops, volume usually contracts. When the downside break occurs, there would ideally be an expansion of volume for confirmation. While volume confirmation is preferred, it is not always necessary. AS SEEN LATELY, BUYERS ABSENT ON LOWER PRICES. CHECK. VOLUME WILL GO WAY UP ON A BREAKDOWN - STILL WAITING
- Return to Breakout: A basic tenet of technical analysis is that broken support turns into resistanceand vice versa. When the horizontal support line of the descending triangle is broken, it turns into resistance. Sometimes there will be a return to this newfound resistance level before the down move begins in earnest. WAITING FOR BREAKDOWN - A GOOD SELL POINT IF IT FAILS HERE
- Target: Once the breakout has occurred, the price projection is found by measuring the widest distance of the pattern and subtracting it from the resistance breakout. 18.5 START TO A 14.0 BASE OF SUPPORT IS 4.5 CENTS GIVING A BREAKDOWN TARGET OF 9.5 CENTS (-32%)
Ok, I will be honest here, I don't think we'll see sub-10 cents on BRL, as the fundamentals are strong. However, a breakdown will be a powerful move, and it will be ugly.
You have been well, well forewarned of the possibilities here! Good luck!
NB - Have traded BRL in the past, but no longer interested. Not shorting any BRL, and not looking to. Merely trying to educate those who will listen and want to figure out why the market moves in the way it does. DYOR. Not advice
(20min delay)