This post is going to be a technical analysis of a past Coca Cola chart, not of the current chart so, if you are looking for an analysis of the latest chart, this is not the place. I do plan to do an analysis of current charts so look forward to it.
So what’s the point of a historical analysis? – to learn from the past, and for the fun of it.
Charts are a summary of all the factors affecting the stock market. The mass psychology, the known and unknow news, everything is factored into the chart.
To some level I believe that charts are simplified representations of all the things that move the market. It’s like reading the hive mind and the emotions and impulses of millions of humans.
Reading minds and emotions is a power that I have always wanted to have. And here it is for anyone to take, free of charge.
Mainly though, because it’s something that I do everyday anyway and I’ve always loved sharing it with others to get constructive feedback.
Anyway, here’s the chart of KO that caught my attention today:
One reason it caught my eyes is because, I remember looking at it at the time. I didn’t trade it though because of the uncertain market conditions then which started from aroung August 2018. I gave back to the market a big chunk of my profits at this time. I stayed by the side lines most the time from end of 2018 – mid 2019, missing out on the nice bull. But considering the prevailing sentiment, I don’t think my decision was wrong.
I did enter one KO position based on a similar analysis as the one in this chart, but it failed nicely. I was actually looking for that part of the chart when I saw this one.
Anyway, back to this chart.
This is what I saw:
I did a lot of pattern trading in 2018. Well… I did a lot of other methods of trading as well, day trading with moving average crosses, heiken-ashi candlesticks and parabolic SAR, trading pullbacks (worked real well in the 1st half of 2018 when the bull was still raging. Not so well when it started to lose power), and swing trading with pattern analysis which was my favorite.
This is an example of the pattern analysis I made of KO stock at the time. I saw a flag pattern, which is usually a continuation pattern. Meaning that, after the flag, the price will go in whichever direction it was going before that – in the direction of the flag pole.
In this case, the pole was going up.
How far it can possibly go up can be easily predicted by extrapolating the length of the pole on the lower border of the flag (the blue line).
And continue it did up to around the predicted area of $50.
This is the main reason I just love pattern trading. It’s so simple.
Of course, this does not equate to its so easy to make money from the stock market. Nothing is easy in life.
In future posts, I’ll be revisiting patterns that didn’t work out.
While pattern trading is simple, like every other trading method, it should never be used alone.
In this instance, I took into consideration the general market sentiment. It wasn’t so great in the 2nd half of 2018, mainly thanks to uncle Trump and his trade war tirades.
There was also that big drop that went below the lower border of the flag. Then came the 2nd drop beyond the lower border and suddenly, this became possible:
If the double top was to complete itself, the price could fall to around the $42.32 area. And there were 2 previous pivot points that could become a target (the white lines).
There was also this:
Another possible pattern was the cup and handle, which is a strong bullish signal – unless it failed. The handle was going on for a bit too long which may signal a failure of the cup and handle, in which case the price could drop below the handle. And there were 2 sudden big drops in the handle which I didn’t feel too good about.
If I was trading the stocks, I may consider taking these risks. However, I was trading the long options so I couldn’t accept the time risk should the stock decide to take a detour before completing the patterns. For this reason, I didn’t take the trade.
The cup and handle also ended up being completed.
If you are an investor, planning on holding Coca Cola stocks for a long time and reinvesting the growing dividends, then this would have been a great time to add to your positions.
I was looking to trade the long options though, so my decision making was different from an investor. If you are looking to trade the stock, or short options, or spreads, then you’d have different considerations.
In all cases though, technical analysis plays an important role.