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Technical analysts and traders believe that certain
stock 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 eight types of stock patterns and
the corresponding trading strategies, that, according to our extensive historical tests, give the trader an advantage.
"Cup-With-A-Handle"
According to tradetrek's extensive and rigorous historical tests, the Cup-With-A-Handle breakup
pattern is the most reliable technical buy signal. The figure below shows a typical example:
Figure 20. This is the typical Cup-With-A-Handle breakup pattern, a
strong buy signal. According to statistics, stock prices rise 70% of the time after such a breakup.
The strategy is to buy the stock as the price 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. According to Tradetrek's extensive
experience and historical testing, the opposite pattern of the Cup-With-A-Handle
does not work nearly as well.
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