Chart Patterns
Part 2
Chapter 7
By : Tutor Age
Cup and Handle
The formation mirrors a cup with a handle, featuring a
cup shaped like a "U" and a handle exhibiting a slight
downward drift.
The descent, known as the "handle," is indicative of a
potential buying opportunity. Once this segment of
the price formation concludes, the stock may reverse
direction and attain new highs.
Cup and Handle
It constitutes a bullish continuation pattern, signifying
an extension of the ongoing uptrend.
Cup and Handle
Cup and Handle
Previous Trend: The cup and handle pattern, being a bullish
continuation pattern, necessitates that the preceding trend
should be an uptrend.
Cup Length: Generally, cups featuring more extended and more
"U" shaped bottoms deliver a more robust signal. It should
exhibit a resemblance to a rounding bottom, ensuring the cup
serves as a consolidation pattern with well-established support
at the bottom of the "U." While the perfect pattern would have
identical highs on both sides of the cup, this isn't always the
case. It's advisable to steer clear of cups with sharply defined
"V" bottoms, as they lack substantial consolidation.
Cup and Handle
Cup Depth: Ideally, the cup should not be excessively deep. In
practice, the cup depth can range up to 60% of the last swing
move. However, the preferred depth for optimal patterns often
hovers around 50% of the last swing, in my opinion.
Handle: Avoid excessively deep handles, as they should not
surpass 50% of the depth of the cup. The most favorable cup
and handle patterns exhibit a shallow retracement on the
handle, typically not exceeding 1/3 of the cup's depth. However,
in certain instances, the price may retrace up to the 0.618
Fibonacci level.
Cup and Handle
Breakout: Bullish confirmation materializes when the pattern
breaks above the neckline, utilizing the prior highs, accompanied
by robust volume.
Stop-loss: Ideally, position the stop-loss at the lowest point of
the handle. In cases where the price oscillates within the handle,
the stop-loss can also be placed below the most recent swing
low.
Target: The profit target equals the depth of the cup, measured
by the distance between the cup's bottom and the neckline. This
distance is extended upward from the breakout level.
Flag Pattern :
Bullish flag formations are identified in stocks exhibiting
robust uptrends and are regarded as favorable continuation
patterns. Termed bull flags due to their resemblance to a flag
on a pole, the pole is a product of a vertical surge in a stock,
while the flag emerges from a phase of consolidation. The flag
may manifest as a horizontal rectangle but is frequently
angled downward, deviating from the prevailing trend.
Generally, volume experiences an increase during the pole
formation and subsequently decreases during the
consolidation period.
Flag Pattern :
The Bull Flag Pattern Exhibits Five Key Characteristics:
1. The prior trend—predominantly an uptrend.
2. The consolidation channel—either inclined downward or rectangular.
3. Volume – High volume during pole formation, low volume during
consolidation, and elevated volume again during the breakout.
4. Breakout from the consolidation range.
5. Confirmation materializes when the price moves harmoniously with
the breakout direction.
6. Target - The target for a bull flag is determined by measuring the
length of the flagpole and extending it from the breakout point.
Type of Flag Pattern :
Triangle Patterns
Triangle Patterns
Symmetrical Triangle :
The Symmetrical Triangle typically serves as a continuation
pattern, signifying a temporary halt in the ongoing uptrend
before the resumption of the original upward trajectory. A
breakout from the upper trend line indicates the continuation
of the uptrend, while a breakdown from the lower trend line
signifies the initiation of a new bearish trend. This pattern is
also recognized as a wedge chart pattern.
Triangle Patterns
Symmetrical Triangle :
Triangle Patterns
Ascending Triangle :
In an ascending triangle pattern, the upper trendline is flat,
while the lower line is rising.
This pattern indicates that buyers are more aggressive than
sellers. It is considered a bullish pattern and is usually resolved
with a breakout to the upside. The pattern is completed with a
decisive close above the upper line.
Triangle Patterns
Triangle Patterns
Descending Triangle :
The descending triangle is characterized by a bearish bias. Also
referred to as a bearish accumulation, this pattern signifies the
readiness of market participants to establish a new low
following consolidation and contraction within a triangle.
Triangle Patterns
End of Part 2!
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