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Using Stock Charts To Win Big

 "What seems too high in price and risky to the majority usually goes higher, and what seems low and cheap usually goes lower." - William J. O'Neil

The ‘N’ in the CAN SLIM strategy stands for either a ‘New Product,’ ‘New Management,’ ‘New High,’ or any other new factor, which could positively change the operating environment for the stock and ultimately drives its price into newer realms. Contrary to conventional wisdom, buying low and selling high is not an easy way to make money in the stock market. In fact, it can be quite risky because in many cases, you’re buying damaged goods.
We would like to specially draw your attention to buying into new highs. Buying a stock when it is scaling new highs might seem strange and scary to many investors. About 98% of individual investors would never buy a stock that makes new highs. Buying a quality stock at a new high is buying into the emerging strength with a belief that it could prove to be the beginning of the next big move.
But, don’t buy every stock that makes a new high, make sure that the stock breaks out of a sound base pattern before it sails above the pivot, on a higher than the average volume. In addition, investing when the stock price is way too extended, say 5–7% or higher from its pivot is not ideal.
Among the eight principal base patterns, including the ascending base, base on base, double bottom, flat base, high tight flag, IPO base, and saucer; cup-with-handle remains one of the most successful to date. Why? Simple. Over the centuries, human nature hasn't changed. Greed, fear, hope, despair, and other emotions drive stock prices. So do the laws of supply and demand. This is why sifting through the charts of the market's greatest winners is time well worth spent
The stock needs to show a 30% uptrend from any price point, but it must be before the base's construction. Or, the stock must show a minimum 20% increase from a prior breakout. The cup-with-handle must be at least seven weeks long. If there is no handle, then the cup itself must stretch a minimum of six weeks. The handle alone needs at least five days to form, but it could go on for weeks. Make sure it doesn't exceed the cup portion in time or the size of the decline. A good cup-with-handle should truly look like the silhouette of a nicely formed teacup. The handle always shows a smaller decline from high to low; it represents a final shakeout of uncommitted holders, sending those shares into sturdier hands in the market. In most cases, the decline from high to low should not exceed 10% to 15%. During bear markets, some good cup-with-handle bases show a large, double-digit decline within the handle. But again, it should not exceed the drop within the cup.
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Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.
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