Pot Stock Tech Analysis: 3 Essential Channel Patterns to Watch

There’s so much excitement with marijuana, it’s impossible not to trip over opportunity.

Just in 2018, there are three major fundamental catalysts.

One, Americans (61% of us) agree marijuana should be legal. Two, Canada will legalize its use in October 2018. And three, corporate America is waking up to the opportunity. It’s why Constellation Brands just increased their stake in Canopy Growth by $4 billion.

So now we have our fundamental catalyst.

There are even technical catalysts. 

When it comes to technical analysis, there are thousands of patterns to watch for, decipher and understand along the way. They’re not so tough to understand. 

In fact, one of the easiest ones to understand is the channel, defined as two parallel trend lines within a tight trading range. The upper line connects the price peaks in the channel while the lower line connects the price lows. 

What’s nice is that such lines tell you when to buy and when to sell. If the stock hits the upper line without breaking higher, you sell. When the stock hits the lower line without breaking through, you buy. There is an exception to the rule. Once the price breaks through the top or bottom line, the trade is over until a new channel has established itself. 

That’s really it.  It’s not rocket science.

Let’s use Canopy Growth as our guinea pig here to prove why channels are essential.


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Between March and July 2017, CGC began to fall apart, dropping in a descending channel. Lower highs, lower lows were ugly. Until the pattern was complete, it was a great idea to stay away from it. One way to tell the descending pattern was complete was with an over-extension on RSI, W%R and the lower Bollinger Band.

That descending channel then gave way to an ascending channel of higher highs and higher lows. As long as CGC stayed between the two ascending lines, we had a strong uptrend. Of course, over-extensions on RSI, MACD, W%R at the upper Band told us when to get out.

And then we had a consolidation channel that lasted from February 2018 to July 2018.

As long as CGC did not break below the channel, there was no reason to sell. Plus, with more good news expected with Canada and corporate America, the stock began to break out of the pattern to the upside. In fact, it ran from $25 to $48.

This is just another reason why it’s essential to pay close attention to technical analysis.

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