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Flags and Pennants in Coffee Point Higher

With #technicalanalysis for #commoditymarkets, the key is to ask yourself is there a logical, #psychological phenomenon ?


With #coffee this week we are seeing two classic examples of "continuation patterns". #Continuationpatterns are typically a consolidation before the #trend continues in the same direction.


The logic and psychology behind #consolidation is pretty straightforward. Whenever there is a big move in one direction (the #trend), the appetite for buying or selling dries up as participants take the positions that they wanted. At this point (when buying/selling dries up), the #market has already repriced in the direction of the trend, and now is when the skeptics move in. It is the role of the skeptics and #contrarians to say that the market is mispriced. If they are right, the market makes a reversal. If they are wrong (or not very confident), then the market just consolidates a bit before the trend resumes.


This consolidation often takes similar forms: a small triangle (#pennant) or a slanted rectangle (#flag). But the meaning of the price action is similar, the markets is converging on an agreed upon price.