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Introduction to Hockey Chart Pattern

21 Aug 2023

Introduction

The name 'hockey stick' comes from the shape of the chart resembling the blade and shaft of a hockey stick. It shows a long period of relatively slow growth, followed by a sharp vertical upward spike representing rapid growth.

In the realms of economics, businesses, politics, and even climate change, this pattern garners paramount importance. Any parameter or indicator following this pattern is critically monitored to find out the underlying causes. Read on to learn more.

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What is the relevance of a hockey stick pattern?

In business or investing, a hockey stick chart often illustrates a startup's growth trajectory or a newly launched service. During the initial stages, there might be a moderate growth phase as the company or product gains market acceptance. Then, if the company or product experiences significant success or profits widespread adoption, the chart line shoots up sharply, forming the "hockey stick" pattern.

What is the relation between the hockey stick pattern and the stock market?

Here are some crucial insights into the relation between hockey stick patterns and stock market:

  • Growth potential: A sudden and significant increase in a stock's price or a company's revenue could indicate that the company is experiencing rapid growth with the right fundamentals and may be performing well in its industry. Investors often look for companies with strong and steady growth potential, as these companies may provide higher returns.
  • Investor sentiment: A hockey stick pattern might reflect a positive shift in investor sentiment towards a particular stock or sector, leading to increased buying interest and price appreciation. A policy change, law amendment, change in corporate governance, merger and acquisition, new product launch, or new government regulations any of these factors can lead to a change in investor sentiment.
  • Market speculation: In some cases, a hockey stick pattern could result from market speculation or a short-term surge in demand without a solid fundamental basis. In such situations, the price increase may not be sustainable in the long term, and a correction could follow.

When traders spot the hockey stick pattern, they often opt for a long position when witnessing a rise in sales volumes. They have the option to go long through spread bets or Contracts for Differences (CFDs), or directly purchase the stock.

Conclusion

While a hockey stick pattern might seem attractive due to its rapid growth, it also comes with higher risks. Traders and investors should conduct their due diligence and not rely on just one pattern to minimize the risks.

 

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