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I have read a lot about patterns lately in this group. The cup and
handle has come up a great deal of late. The bad thing about these
patterns, whether it be cup and handle, head and shoulders, pennants,
flags or any of the other myriad of formations is that they don't work
consistently enough to base a trade upon. You are always guessing and
under many market conditions these guesses are incorrect.
There are other systems using cross overs as in stochastics, William's
%R, MACD, and moving averages. I have not found them to be more the 30%
accurate. This is not a good percentage for a trader. For an investor,
who has a great deal of time to let the profits on the good trades run
and is scrupulous about his stops, this can be a profitable percentage.
I met a fund manager who was making a 30% annualized return with a 38%
win percentage.
There is seasonality. Look at the Moore Report and analyze their
results. For taking trades based upon past history their record is far
from exemplary. There are classic methods such as Gann, Eliot, and
methods put forth by Hurst, and Steidlmayer. There are books on "How
to Chart Your Way to Stock Market Profits" and "Winning Market Systems,
83 Ways to Beat the Market" as well as numerous books on Candlesticks,
astrology, delta timing points and point and figure charts.
With all of these systems, indicators and books, there are still very
few really successful traders. It is the trader that executes the plan
or system that makes it profitable. Whatever system you use, whatever
group of indicators or fundamentals you apply, it is still up to you,
the trader, to form a plan of action and execute that plan. The cup and
handle may have failed, but from what I read, the trader didn't. He
executed his plan and extricated himself from the trade. He may look
back at the trade, analyze what he did and ask himself, " What could I
have added to the system to avoid this type of mistake?". There are
dozens of questions you ask yourself after every trade, successful or
unsuccessful. It is these questions that strengthen your trading method
and help you avoid making the same mistake twice. It all comes down to
"Make a plan and then follow that plan". Always have the predetermined
risk. Good trading and a good week. Ira.
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