Trading the Cup & Handle Pattern
- Thread starter almx
- Start date
# International Paper Company (IP) - Process Industries - Pulp & Paper
Produces renewable fiber-based packaging and pulp products with manufacturing operations.
# Timing vs Market
Trade alignment with the overall market.
The current market sentiment is bullish so it’s OK to attempt a long trade.
Its sector, Consumer Cyclical, has under-performed the S&P 500 as of today for the last TTMs and despite its recent 18 months of consolidation, the stock performance is above the S&P 500 for the last 12 months.
# Timing within the Wyckoff Cycle
Where the stock is in the Wyckoff cycle.
The current phase is Markup as the Stock is well above the highs of its accumulation phase. The end of the accumulation period, from half March, was marked with higher volume, buying days outpacing selling ones indicating net institutional buying.
# Fundamentals
Key fundamental factors.
The company is profitable and last quarter earnings and margins grew q/q but annually the numbers are not yet aligned. Note that Margins have been constantly progressing over last 3 months while the other numbers have been more erratic.
# The Trend
Analyzes the stock's trend.
The stock made a strong 41% run to get out of its accumulation area and is now well above it with all EMAs aligned and up, indicating a strong up trend. The trend is young as this pattern was part of a first consolidation.
# The Cup & Handle Pattern
Detailed Pattern analysis.
The pattern is 30% deep and short in duration with a cup lasting only 32 days. The handle is a bit deep but still within the limits and had a duration of 19 days. Volume did as expected during the pattern but it was less cooperative during the breakout as only one day with above average volume was observed. It would be nice to have one or more high volume follow through up days to confirm the breakout but I have also observed some “silent” breakouts that work as well as those with strong volume.
# The Trade
Entry, parameters and progress and management.
I entered in 2 steps between 15-20 august with a resulting entry price of 47.32, the entry was only motivated by the breakout of the cup as there was no volume confirmation. My Initial stop Loss is set at 10% from the entry point and my ideal take profit is between 3-5 times my risk over a 6-8 month period depending on market conditions, the time it takes to get there, if it even gets there, and how my other trades perform.
Produces renewable fiber-based packaging and pulp products with manufacturing operations.
# Timing vs Market
Trade alignment with the overall market.
The current market sentiment is bullish so it’s OK to attempt a long trade.
Its sector, Consumer Cyclical, has under-performed the S&P 500 as of today for the last TTMs and despite its recent 18 months of consolidation, the stock performance is above the S&P 500 for the last 12 months.
# Timing within the Wyckoff Cycle
Where the stock is in the Wyckoff cycle.
The current phase is Markup as the Stock is well above the highs of its accumulation phase. The end of the accumulation period, from half March, was marked with higher volume, buying days outpacing selling ones indicating net institutional buying.
# Fundamentals
Key fundamental factors.
The company is profitable and last quarter earnings and margins grew q/q but annually the numbers are not yet aligned. Note that Margins have been constantly progressing over last 3 months while the other numbers have been more erratic.
# The Trend
Analyzes the stock's trend.
The stock made a strong 41% run to get out of its accumulation area and is now well above it with all EMAs aligned and up, indicating a strong up trend. The trend is young as this pattern was part of a first consolidation.
# The Cup & Handle Pattern
Detailed Pattern analysis.
The pattern is 30% deep and short in duration with a cup lasting only 32 days. The handle is a bit deep but still within the limits and had a duration of 19 days. Volume did as expected during the pattern but it was less cooperative during the breakout as only one day with above average volume was observed. It would be nice to have one or more high volume follow through up days to confirm the breakout but I have also observed some “silent” breakouts that work as well as those with strong volume.
# The Trade
Entry, parameters and progress and management.
I entered in 2 steps between 15-20 august with a resulting entry price of 47.32, the entry was only motivated by the breakout of the cup as there was no volume confirmation. My Initial stop Loss is set at 10% from the entry point and my ideal take profit is between 3-5 times my risk over a 6-8 month period depending on market conditions, the time it takes to get there, if it even gets there, and how my other trades perform.
NextEra Energy (NEE) -Utilities - Electric Utilities
NextEra Energy, Inc. engages in the provision of renewable energy
Trade Checklist Score.
Stock fundamentals, timing and pattern quality in a single score.
The stock scores 90% which indicates that timing and technical conditions are met to initiate the trade.
Trade Parameters.
Entered long @ 77.87 on Aug. 14 2024 (anticipating breakout)
Stop Loss ~ 74.00 (5%)
Breakout date : Aug. 16 24 @ 79.35
Profit Target: ~120 (50% from breakout)
NextEra Energy, Inc. engages in the provision of renewable energy
Trade Checklist Score.
Stock fundamentals, timing and pattern quality in a single score.
The stock scores 90% which indicates that timing and technical conditions are met to initiate the trade.
Trade Parameters.
Entered long @ 77.87 on Aug. 14 2024 (anticipating breakout)
Stop Loss ~ 74.00 (5%)
Breakout date : Aug. 16 24 @ 79.35
Profit Target: ~120 (50% from breakout)
NextEra Energy (NEE) -Utilities - Electric Utilities
NextEra Energy, Inc. engages in the provision of renewable energy
Trade Checklist Score.
Stock fundamentals, timing and pattern quality in a single score.
The stock scores 90% which indicates that timing and technical conditions are met to initiate the trade.
Trade Parameters.
Entered long @ 77.87 on Aug. 14 2024 (anticipating breakout)
Stop Loss ~ 74.00 (5%)
Breakout date : Aug. 16 24 @ 79.35
Profit Target: ~120 (50% from breakout)
So you are holding through multiple earnings? If my TA is correct, we are going to need a series of earnings misses to facilitate the drop to Y. Let's see if I can go 2 for 2 after forecasting home depots miss.
I will say that is one extended 3 wave spanning 7 years! Target $120??? How long are you prepared to hold this? Even if price does track up you are looking at 2026 for your profit target.
But again, please stop with the C&H's...none of the criteria is being met.
Other scenarios:
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Monthly Portfolio Update, August 2024
It seems that I have two promising stocks in HALO and LOCO which have progressed well and are showing great strength but it all was during a general market bull run. Remains to be seen how they will do during the next shakeout.
IP had one day with some volume, traded above but closed a few cents just below the breakout level, does that count ? We will see, but for now it’s still above it, waiting for more volume and progression to confirm.
NEE Printed a nice pattern but also broke up silently, I anticipated the breakout here and entered a bit lower, now it’s trading above breakout level but I’m still waiting for volume.
Precise entries for a more reduced risk.
I reduced my risk from 10% to 5% for the simple reason that I have observed that when the entry is at the right level and at the right moment, the stock almost never retraces from there, so the eventuality of me being wrong would only signal that something is not well with my entry, or the stock itself, or the whole market and then it’s better getting out immediately and re-evaluate all that.
The price to pay is that I will have to make a fine analysis and precisely spot my entry price and enter exactly at that level and never chase a stock that has gone too far beyond it. The reward is that if I’m able to do it, I will instantly double my reward ratio while keeping the same targets.
The Checklist Score.
I have also decided to write less about why I take an entry and instead create a checklist of hard cold parameters and conditions to decide whether to enter a stock or not, basically all stocks with 70% or better score should be good candidates.
Current Open Positions.
It seems that I have two promising stocks in HALO and LOCO which have progressed well and are showing great strength but it all was during a general market bull run. Remains to be seen how they will do during the next shakeout.
IP had one day with some volume, traded above but closed a few cents just below the breakout level, does that count ? We will see, but for now it’s still above it, waiting for more volume and progression to confirm.
NEE Printed a nice pattern but also broke up silently, I anticipated the breakout here and entered a bit lower, now it’s trading above breakout level but I’m still waiting for volume.
Precise entries for a more reduced risk.
I reduced my risk from 10% to 5% for the simple reason that I have observed that when the entry is at the right level and at the right moment, the stock almost never retraces from there, so the eventuality of me being wrong would only signal that something is not well with my entry, or the stock itself, or the whole market and then it’s better getting out immediately and re-evaluate all that.
The price to pay is that I will have to make a fine analysis and precisely spot my entry price and enter exactly at that level and never chase a stock that has gone too far beyond it. The reward is that if I’m able to do it, I will instantly double my reward ratio while keeping the same targets.
The Checklist Score.
I have also decided to write less about why I take an entry and instead create a checklist of hard cold parameters and conditions to decide whether to enter a stock or not, basically all stocks with 70% or better score should be good candidates.
Current Open Positions.
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1st exit is a hard stop 5% below breakout level which itself should be a bit below my entry price if I have entered correctly.
2nd exit is a soft stop (on observation) if the stock has progressed and comes back and closes below EMA200.
3rd exit is if I ever reach 50% profit level, which is my target, the first close below EMA20.
4th and last resort exit is a timeout limit, after 6 months at my own discretion (market going bearish, stock getting weak, etc...)
All conditions are weighted equal, the list serves first to filter out non matching stocks from my watch list which means that almost all the stocks in it reach at least 70%, and second, to remind me all that I need to check even if I check it anyway constantly, kind of pilot's check list before taking off...
You didn't mention how many conditions.
I have 10 conditions.
How do you assign a value to each condition to come up with a final percentage?