The Longer the Base the Higher the Space

“The longer the base, the higher the space”, as they say. And that just means that a long base leads to a much longer and stronger move when it does finally begin.

At Tramondo, we like to focus on bases or as we call them – box consolidations. But what is a base? Simply, it is an extended period of time where prices remain within a well-defined range with clear support and resistance levels. Whenever prices reach the upper end of a range, supply comes in the form of sellers, but when prices fall lower to the bottom of the range, demand comes in the form of buyers. This continues for a lengthier-than-average period of time until it resolves one way or the other.

These ranges can be sideways or inclined. They can come in all time frames (e.g. daily, weekly, monthly and even in intraday charts), whether you are a long-term investor or a short-term trader. Moreover, we can find them across all asset classes. The supply and demand dynamics that cause the powerful resolution remain the same.

At Tramondo, we think that a chart pattern is a visualization of the sentiment of a stock and that by observing it one can capture useful information that will provide an edge. For us technical analysis is a tool, like all others, that is useful in gaining additional information as to what the probabilities of success are in each investment. It is also an effective risk management tool that can provide signals even before the fundamentals reflect the change.

As an example, please find Tomra Systems ASA (Chart 1) for a resolution higher and Tencent (Chart 2) for a resolution lower.