The Importance of Identifying Favorable Stock Chart Patterns

The Importance of Identifying Favorable Stock Chart Patterns

To be a successful investor it’s important to look for those stocks which are forming a favorable chart pattern such as a "Cup and Handle", "Double Bottom" or "Flat Base". In 2002 some of the best performing stocks exhibited the above mentioned chart patterns before breaking out and undergoing significant price appreciation.

Here are a few stocks that exhibited a "Cup and Handle" pattern before breaking above their Pivot Points on strong volume. CBZ formed a 7 month Cup from July of 2001 until February of 2002 and then developed 3 week Handle (H) before breaking above its Pivot Point in early April on strong volume. After breaking out of its Handle CBZ appreciated nearly 155%.

FSTW formed a 1 year Cup from January of 2001 until January of 2002 and then developed a 9 week Handle. FSTW then broke out of its Handle and above its Pivot Point in April accompanied by strong volume. After breaking out of its Handle FSTW appreciated nearly 225% over the next few months.

HL formed a shallow 9 month Cup from May of 2001 until February of 2002 and then developed a 4 week Handle (H). It then broke out of its Handle and above its Pivot Point in late March on good volume. After breaking out of its Handle HL gained nearly 275% over the next few months.

MWRK formed a 5 month Cup from September of 2001 into the early part of 2002 and then formed a 4 week Handle (H). MWRK then broke out of its Handle and above its Pivot Point in early March. After breaking out of its Handle MWRK gained nearly 200% over the next several months.

Another chart pattern to look for is the "Double Bottom" which looks like the letter "W". Here is a stock (CFI) that formed a Double Bottom pattern from May of 2000 into the early part of 2002 and then developed a small 3 week Handle (H) before breaking out in March accompanied by strong volume. After breaking out in March CFI gained nearly 170% over the next four months.

The third type of chart pattern to look for is called a "Flat Base". Flat Bases form as a stock basically trades sideways for several weeks or months. CVU formed a Flat Base for nearly 6 months before breaking out in April on good volume and appreciated over 300% over the next few months.

TENT is another example of a stock which formed a Flat Base for 10 months before breaking out in the early part of 2002. After breaking out TENT appreciated nearly 450% over the next 6 months.

These are some of the chart patterns you should be looking for when deciding which stocks to invest in. Investing in a stock which doesn’t have a favorable looking chart pattern can lead to poor performance while other stocks which are breaking out of a favorable chart pattern ("Cup and Handle", "Double Bottom" and "Flat Base") undergo significant price appreciation. Also if you examine the stocks mentioned above they all broke out of a favorable chart pattern on strong volume as well.