A Roof pattern is a relatively new formation that was discovered by technical and author Thomas Bulkowski in 2005. New Jersey Resources Corp (NJR), a company in the natural gas industry, gave swing traders a glimpse of this pattern, and with it, an opportunity to consider it for a potential trade. Here’s what it looks like:
The top of the pattern [A] minus the bottom at [B] gives us a “height” of $3.45. Subtract that from the bottom and you get a price target of $35.70 per share. That represents a 100% projection of the entire height. I represented the target with a box rather than a line simply because a trader may close out the short trade anywhere within the box.
Not only is this a rare pattern, but it’s also tricky as the probability of this “bearish” pattern rising (hence, a “bullish” continuation) is around 34%. So, proceed with caution.
Trading futures, options on futures, and forex involves substantial risk of loss and is not suitable for all investors. The use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.