lowtrade

[lowtrade]

The Cup & Handle chart pattern

YES, good eye.

Cup & Handles are normally longer term plays forming over a few months. Thus swing traders don't find them to play often. They become obvious on 6 month charts, more then 3 month.

6 month
http://stockcharts.com/h-sc/ui?s=SVM&p=D&yr=0&mn=6&dy=0&id=p20358576848
3 month
http://stockcharts.com/h-sc/ui?s=SVM&p=D&yr=0&mn=3&dy=0&id=p60784478877

The thing about trading a mid to long term cup & handle is start small and step in. Because usually there is plenty of up side time. And just after breakout, you often see throw back, to below top resistance for a short while. Then it continues after.

I step in small at first break. Second step at throw back bounce. Usually lower then the first step in. And go larger after second resistance break or above. It's normally a 2 weeks to month swing trade, entered in 3 steps. But exited in 1 step at target.

Buy dancing around the resistance line in steps. It protects you from getting caught large on a failed play and sometimes lowers your basis in a successful play.

SVM SEE chart below
Entry 2.85, may get to 3.10 and come back to 2.65, before running past 3.10 again. 3.10 would be step 3, for a low risk trader. 2.85/90 again for a higher risk trader. Step 2 would be 2.70 throw back bounce before 2.80 resistance break the second time.

4 month chart - pattern took 14 weeks to form. usually reaches target 1/2 the time it takes the pattern to form. Swing trade 7 weeks. But some times it takes as long to reach target as it takes the pattern to form. 14 weeks possible. If a swing trader has a 7 week time frame, stick to it. Sell out at 7 weeks no matter where the price is. Odds are you'll hit target before then once a second resistance break happens. There are times without throw back. Love that, they usually reach target quick! In that case step in twice, 2/3rds when you feel comfortable there will be no throw back.

This step entry trade style allows you to only lose 1/3 of what you want to trade, if the throw back retrace doesn't come back. Protect your cash. Basis 1/3, @ 2.85, 1/3 @ 2.70, 1/3 @ 3.10 = 2.88. So in this case it cost you 3 cents from large 2.85 entry for protection. Sometimes the basis is lower. But IMO 3 cents is worth the 3 times larger loss in a failed no comeback cup & handle. And the cup & handle pattern is NOT the most reliable pattern out there. Caution is the word for this pattern.