These chart patterns are the "bread and butter" of good stock trading. Get to know them and they will serve you well now, and in the future.
CUP-WITH-HANDLE - This is the best chart pattern a growth stock can have.
- The base must be at least 7 weeks in length, but it can last up to 65 weeks.
- The stock usually corrects 20-30% from the high, but up to 50% in a bear market.
- The handle usually lasts a week or two and should drift sideways or down along it's lows.
- Handles usually correct 10-15%, but up to 20-20% in a severe bear market.
- Handles should form in the upper-half of the cup, preferably within 15% of the old high.
- The handle should form above the 200-day moving average.
The buy point occurs when the price moves above the high of the handle on an increase in volume of a least 50%. The Relative Strength line should lead or closely follow the stock's price into new high ground.
DOUBLE BOTTOM - This is a common base with a good history. The price pattern looks like a "W."
- It should be at least 7 weeks in length.
- The stock starts to correct and then stops putting in the first part of the "W."
- It then rallies, forming the middle part of the "W."
- The next leg is formed when the stock falls again.
- The final part of the "W" takes shape when the stock rallies again.
The second leg down of the "W" should undercut the first to shakeout the weaker holders. The "pivot point" or buy point occurs when the stock clears the middle part of the "W" on heavy volume.
FLAT BASE - Another very successful and common chart pattern, but it can be as short as 5 weeks in length.
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This base usually occurs after the stock has broken out and ran up from another base.
- The stock appears to move sideways and usually corrects just 8-12% from it's high.
- There should be at least one period during the base where the volume drys up at least slightly.
The "pivot point" or buy point
occurs when the stock moves above the high of the base on
heavy volume.
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