Ascending Channel For Flight Centre

By Kerryn McHardy, Traders Circle

Advisor's Tip: Ascending channel pattern on Flight Centre

Channels provide one of the most accurate methods from which to trade in any market. By containing an equities price action between two parallel trend lines, as traders and investors we can determine points from which to buy and sell. Today we are looking at the ‘Ascending Channel’ on Flight Centre Travel Group ((FLT)).

Ascending channel patterns are bullish where a stock moves higher within an ascending channel, as a continuation pattern. The stock will continue channeling upward until it is able to break either the upper or lower trend line. An upside break is bullish, while a downside break is bearish.

Context: Often found within a downtrend, but up close appears to be a minor uptrend.

Appearance: This is a channeling stock with an upward tilt. Two parallel trend lines control the stock’s price action. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets.

Below the stock price is the primary ascending trend line, which connects consecutive higher troughs. Above the stock price is a second trend line, which is also ascending, that connects consecutive higher peaks. Upon reaching the lower trend line, the stock bounces until it reaches the upper trend line, which acts as resistance. Confirmation of this pattern comes after there are at least two contact points with the upper trend line and two with the lower trend line.

Important note about channels: The more contact points with the channel’s trend lines, the more reliable the pattern is.

Breakout Expectation: Stocks trading within ascending channels are only able to reverse direction with a breakout to the downside of the primary descending trend line. The strength of this breakout, the duration of the channel, and the width of the channel will determine how far a breakout may carry. A breakout is usually confirmed when the price closes above or below the boundaries of the pattern however, breakouts are not objective and price sometimes retraces back to the channel.

The daily OHLC (open high low close) daily chart below shows an ascending channel on Flight Centre Travel (FLT) as indicated by the blue trend-lines containing the trending highs (resistance) and lows (support).

True to the pattern, we now find the stock price back at the higher section of the channel. What we are now waiting to see is whether the stock will remain within the current formation, which would require the stock to touch resistance and fall from there. [Stock fell heavily with the market yesterday to the centre of the channel – Ed]

There are many ways that you can trade the channel formation. In the instance provided, we could wait to see if the stock holds the resistance level and looks bearish again. If this occurred, we would then expect a continuation of a move down from resistance within the channel formation as it has done in the past. Alternatively, if the stock broke up through the resistance, it would be the end of the channel and potentially the start of a new trend but we would be reluctant to trade it immediately.