Hockey stick chart pattern explained
The hockey stick chart pattern is characterised by a period of flatness, followed by a sudden and rapid increase. Here, you’ll learn how to identify it, what it means for traders, and how to take a position when you spot it.
What is a hockey stick chart?
A hockey stick is a chart pattern that shows a rapid increase after a period of relative stability. Traders will often look for the pattern when assessing metrics such as a company’s sales volume or revenue growth which, in turn, could lead to a corresponding rise in share prices.
How to identify the hockey stick pattern
A hockey stick pattern can be identified by three distinct parts: the blade, the inflection, and the handle. Let’s go through each of these in turn.
The blade on a hockey stick chart is often a flat line, in which growth is slow, maybe even stagnant. The inflection is a curve from the blade, which represents an initial burst in growth. The handle comes after the inflection, and it shows sustained and expanding growth along an upwards trajectory.
What does a hockey stick chart pattern mean to traders?
To traders, a hockey stick pattern on a sales volume or revenue growth chart could indicate that there is heightened interest in a company’s products or services.
A rising sales volume would act as a potential indicator of an imminent increase in the company’s share price, as more and more consumers become interested in their products. That’s because more consumers would push up demand, which in turn, would cause revenues to increase as the company expands.
As the company expands and its revenues continue to grow, it would be expected that the company’s share price will also rise – presenting an opportunity for traders.
How to trade the hockey stick pattern
Many people will trade the hockey stick pattern by opening a long position if sales volumes are increasing. You could choose to go long with CFDs, which are financial derivatives that enable you to speculate on an asset’s price without having to directly own it.
Alternatively, you could invest in company stock and take ownership directly. This’ll make you a shareholder, and you’ll be eligible to receive dividends and voting rights, if the company grants them.
Hockey stick chart pattern summed up
- The hockey stick chart pattern is indicative of a rapid increase in a certain metric
- A hockey stick chart pattern showing rising sales volumes could result in a similar increase in a company’s share price as revenue grows
- Traders will take a long position to speculate on rising share prices
- To trade the hockey stick pattern, open an account today
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