AMC stock price moved in a tight range for the entire month. Now that the end of the trading month is upon us, the price action looks like a pennant formation waiting to break higher.
A pennant is a continuation pattern. The market rallies in an almost vertical line consolidates in a triangular pattern and then continues in the same direction.
To trade a pennant, different trading strategies may be used – some conservative and some aggressive. Because AMC is one of the meme stocks with increased volatility and options trading strategies in place, the best way to deal with the setup is to use a conservative approach.
The triangular consolidation during a pennant formation is not time consuming, as, say, in the case of a bullish flag. Hence, by the time the price breaks the upper edge of the triangle, the pennant is completed.
However, the conservative approach requires to wait for the market to close above the highest point in the pennant. Therefore, the entry on the long side is granted only by a close above $70. Such a trade needs a stop-loss order at $55 and a take profit at $100 for a nice risk-reward ratio.
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