It is far better to understand why the patterns are formed.
One stock I was asked about is $FTNT -- its a good one to analyze.
Here's the big picture view:
First - let's start with how the parabolic run up started:
This pattern might be called a Cup
1. Starts with an excited parabolic sunup 100% move into $50 - common for stocks to fail at the obvious round number levels 50, 100, 200, 250 500 etc.. after a double. And that's what happened. Clear signs of a blow off, and look how distribution hit the stock. It had progressed pretty evenly on left side, but after $50 reject, big wild swings and it rerun all the way to prior breakout.
2. Then the base building pattern begins. Investors with a longer term perspective start taking positions. Nothing to due but wait for it to get tight and character to change.
3. Towards's right side of the base, notice how it starts holding the 5EMA? the volatile swings are gone and the stock starts grinding higher. Clear sign of demand. -- Early positions can be taken in this range, The upside is stops can be tighter and your in before the breakout.
The Markup
After the breakout, at $50, FTNT then begins a nice steady markup. Nothing crazy but demand is there. The 20EMA was support for this entire move and positions could be taken off bounces.
The parabolic blow off
Gaps in a stock should accelerate the pace of the move.
1. Earnings gap big volume. Notice narrow range after earnings day. That means there is a ton of demand. It's holding the earnings pop and the natural tendency to take profits after an overnight 10 pt. move is overcome by new buyers.
2. Pace accelerates - 5ema now holds for move.
3. a sell off to 20ema would feel like a big drop -- but we know FTNT has found support at that level. and it did again.
Blow off and re-set
Eventually, a stock that has made a major advance will run out of demand,
Warning signs include
1. massive blow off: -- this stock doesn't show that, or
2. tepid act after range break -- this occurred
After small dip to 20ema, it -rebroke out -- no volume and move quickly failed, profit should be taken off failed breakout, or if did not read that more subtle signal- certainly after the 20ema failed.
The Cycle Repeats
Just as FTNT went into unwind and base after last parabolic move it starts it again.
Clues to look for in base, is a support area. _ I find that when a stock has a big down day that looks like it is going to totally break down and then it cannot do so, is something to start watching -- note I said "watch" not "buy" -- then watch for character change before buying.
This one is interesting because it went into a base within a base. -- the right side of the chart and those narrow range days -- have my interest peaked. - narrow range stores up power. -- Next move should be large. Note, however that earnings coming up..
OR we could just say its a cup and a handle
