These type of patterns are understood to represent a brief pause in the preceding trend before a continuation.
In this context the preceding trend was up, and the price of BHP Billiton (SA) is currently breaking out while possibly beginning the continuation.
The piercing pattern shows the short-term downward move has ended, and indicates the potential for a price reversal. We also observe that the price has found support at the gap level.
|Initial target (recent high)||31,400c|
| Ultimate target (flag target)
| Failure level (below gap support)
| Stop-loss distance
||1600c (current price – failure level)|
|Initial reward||900c (initial target – current price)|
|Ultimate reward||2100c (ultimate target – current price)|
| Initial Risk/Reward ratio
|| 1: 0.56
| Ultimate Risk/Reward ratio
|| 1: 1.3