Technical analysts and traders believe
that certain chart patterns and shapes are signals for
profitable trading opportunities. Many professional and amateur
traders claim that they consistently make trading profits
by following those signals. In this chapter we introduce some
types of chart patterns and the corresponding trading strategies,
that, according to our extensive historical tests, give the
trader an advantage.
The Cup-With-A-Handle breakup pattern is a technical buy signal. The figure below shows a typical example:
Figure 20. This is the typical Cup-With-A-Handle breakout pattern,
a strong buy signal. According to statistics,
prices rise 70% of the time after such a breakup.
The strategy is to buy as the rate breaks up with larger than average volume, then
cut losses if it drops back to the pre-breakup level. If it
goes up as expected, this pattern calls for successively raising
the stop levels, giving the trade a chance to capture most of the up potential.