The high tight flag is a rare pattern. It's often associated with vibrant companies with new products that can change the world.
Stun gun company Taser International (TASR) formed the pattern in 2003. Tech innovator Qualcomm (QCOM) shaped the pattern in 1999. Birth-control pill maker Syntex did it in 1963. TV maker Zenith had the honors in 1958.
And Bethlehem Steel, now defunct, raised the flag in 1915.
What was new about steel
The company's grey rolling mill was revolutionary. Henry Grey's invention was installed at the plant in 1907-08. The beams were lighter, stronger and more economical than conventional riveted beams.
The invention made skyscrapers possible.
The high tight flag looks something like a skyscraper.
The pattern forms when a stock surges 100% to 120% in four to eight weeks. The stock then corrects 10% to 25% in three to five weeks. The ideal is the high of the flag plus 10 cents.
Naive investors scoff at the high tight flag. They can't believe a stock can be a buy after doubling in price. Yet, an opportunity it is.
"This is the strongest of patterns, but it's also very risky and difficult to interpret correctly. Many stocks can skyrocket 200% or more off this formation," IBD founder and Chairman William J. O'Neil writes in ".
In the spring of 1915, Bethlehem Steel broke out of a . (1) The stock more than doubled in five weeks. Then it corrected about 20% over four weeks. (2) The next led to more than a 275% gain over 20 weeks.
Three additional notes on Bethlehem Steel' s chart: First, notice how the big move came seven years after Bethlehem installed the new technology. True breakthroughs gain power and momentum over a long period. It's not like a fad that lasts a season or two.
Second, note how Bethlehem thrived despite the pro-regulatory, anti-business climate of President Woodrow Wilson. True change doesn't come from politicians. It comes from innovative businesses. So stay focused on stocks.
Third, when do you sell? Look for the usual sell signs, but don't ask people to feel sorry for you if you only make 200% rather than 250%. Few will feel your pain.