{"id":209194,"date":"2024-07-16T08:59:20","date_gmt":"2024-07-16T12:59:20","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=209194"},"modified":"2024-08-28T15:26:26","modified_gmt":"2024-08-28T19:26:26","slug":"chart-advisor-a-case-study-on-amazons-breakout","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/chart-advisor-a-case-study-on-amazons-breakout\/","title":{"rendered":"Chart Advisor: A Case Study on Amazon’s Breakout"},"content":{"rendered":"\n

By David Keller. CMT<\/a><\/p>\n\n\n\n

Price Patterns: A Case Study on Amazon’s Breakout<\/strong><\/h2>\n\n\n\n

Investopedia is partnering with CMT Association on this newsletter.  The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.<\/em><\/p>\n\n\n\n

Price Patterns: A Case Study on Amazon’s Breakout<\/strong><\/h2>\n\n\n\n

Before we get into the nitty-gritty, let’s set the stage. Amazon, synonymous with innovation and global reach, has been a titan in the stock market. Just recently, we discussed Amazon alongside Meta and Alphabet as key stocks to watch in July. But the big question is, how can one accurately play the patterns these stocks exhibit? Here’s what you need to know about the three steps to every price pattern, using Amazon as our prime example.<\/p>\n\n\n\n

IDENTIFYING THE SETUP<\/strong><\/p>\n\n\n\n

The first step in any price pattern is called the setup. Picture yourself scanning the chart of Amazon. Over the past twelve months, it’s been generally bullish, staying mostly above two upward sloping moving averages. However, from April to June, the stock stalled out around $190 per share\u2014a key point we’ll revisit. This is the setup phase.<\/p>\n\n\n\n

Notice that the price hovers around $190 multiple times\u2014in April, May, and June. Such repetitive touchpoints, known as pivot points, help in establishing a resistance level. The setup phase, therefore, is when your eyes tell you there’s a pattern forming. For Amazon, repeatedly testing the $190 share price hinted at a potential ascending triangle pattern.<\/p>\n\n\n\n

GETTING TO THE TRIGGER<\/strong><\/p>\n\n\n\n

This step is where many novice analysts falter. Impatience often leads them to bet immediately on a suspected pattern, risking false breakouts. The trigger, the second step, is the confirmation moment\u2014the point at which the pattern proves its validity. In classic technical analysis literature, this is essential.<\/p>\n\n\n\n

In Amazon\u2019s case, the trigger happened when the price finally closed above the $190 resistance level after multiple touch attempts. This breakout was pivotal, turning the “potential ascending triangle” into a confirmed pattern. This step guards against making premature trades triggered by mere speculation.<\/p>\n\n\n\n

WAITING FOR THE CONFIRMATION<\/strong><\/p>\n\n\n\n

Here\u2019s where the rubber meets the road: confirmation. Many traders jump the gun after seeing the trigger, but experienced analysts understand the importance of waiting for follow-through.<\/p>\n\n\n\n

Post-breakout, observed in Amazon’s price crossing $190, the final step is to look for continuous momentum. What we saw was reassuring\u2014additional buyers came in after the breakout day, pushing the price upward to around $200 per share. This follow-through confirmed the breakout wasn\u2019t a fluke but a solid upward momentum.<\/p>\n\n\n\n

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