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.

Double Bottom

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