This is another article in a series of education posts from Alan Hull. Alan Hull is a renowned technical analyst within the Australian Market. He has educated thousands of investors on how to apply technical analysis within their overall strategy. In this special series, Alan has agreed to share his Technical Analysis tutorials with Stockopedia members. He has committed to provide one ever three/four weeks. To learn more about Alan you can read his profile here. Or visit his website alanhull.com.au
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Triangles
‘Points of agreement’ and triangles
During a period of consolation, price activity gradually narrows down over time into what we call a ‘Point of Agreement’ (POA). Thus, if you consider the consolidation pattern in the following chart, you can see how the price activity is spiraling in towards a point. At this point or moment when the market is almost still, near the tip of the triangle, the market participants seem to be content to neither buy nor sell the share.
Hence they are essentially agreeing that the price at which the share is trading at is fair value by refraining from buying or selling it. It would appear the share is no longer a bargain for those who would want to buy it, nor is it selling at a high enough premium for those who want to dispose of it.
The Point of Agreement is at the tip of the triangle, just before the breakout
You’ll also note in this chart that there is a line running along the apex of the triangle and this line identifies the midpoint of the share’s trading range throughout the period of consolidation. In contrast to the ‘Point of agreement’ which occurs at the tip of the triangle, this line is effectively the ‘Line of agreement’.
Anyway, let’s get back to our discussion on market behaviour and the significance of the point of agreement. Of course if a market remained at a point of agreement indefinitely then the market would cease to exist. Hence markets must constantly move in…
