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Wednesday, October 22, 2008

Cup & Handle Pattern Example - Transocean Inc. (NYSE:RIG)


Above is a 15min chart of Transocean Inc. (NYSE:RIG) on Monday. It gapped up, retraced and found support at opening range low and 20 EMA. It then developed a Cup & Handle chart pattern. Notice the handle part of the pattern is on low volume, which is a feature of this pattern.

Below is a 5min close up of the chart. While one would typically enter on break of the cup's high at the 1.25pm ET bar, it would be prudent to wait for consolidation in this case as it has printed several consecutive bullish bars prior to breakout. This is a useful tip shared by seasoned day trader, Trader Jamie. Price tends to pullback on consolidate after 3 consecutive bullish/bearish bars. So best to wait out. Indeed, RIG consolidated around $76 before moving up again. Stop loss can be set on trigger bar low. Target is usually set at 100% fibonacci extension from bottom of cup to high of cup & handle pattern which was reached near the very end of the trading session. Of course, given the volatility of market these days, it would be wise to take partial profit at the 61.8% fibonacci extension, which is also near round number $78 and tightened up your stop.


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