Chart Patterns (Buy Signals)
When to buy a stock is always a difficult decision. However by analyzing chart patterns and associated price and volume movements investors should become more comfortable with these decisions. There are several different types of chart patterns however I tend to focus on the Cup with a Handle, Flat Base and Double Bottom patterns.
1. Cup with a Handle
MCOM started to formed a Cup in the late Summer of 1999 after
making a Climax Top in July. It then completed the Cup by early November
and then developed a short term Handle (points A to B) for about three weeks.
Next broke out of the Handle in mid-November with increasing volume (point
C) and proceeded to double
($50 to $100) in the next 4 weeks.
RHAT is another good example of a Cup and Handle pattern. RHAT formed a Cup from early September to mid November and then formed a very short term Handle (4 days). RHAT then exploded out of the Handle (point A) with increasing volume in late November. The stock then rocketed from $130 to $300 in three weeks for a gain of 131%.
YHOO took about 8 months to form a bigger picture Cup (April to December) after making a top in early April. It then formed a very short term Handle for about 6 days and then broke out of the Handle in early December with increasing volume (point A). YHOO then soared from $225 to $350 in 4 trading days for a gain of 56%.
The next chart pattern we will look at is the Double Bottom. Click on the link below to see examples.