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Sergey Savastiouk's Avatar
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Feb 13, 2021

Trading psychology in a cup-and-handle pattern

Pattern trading in the security market isn’t new. For years — decades even— traders have been scouring charts on a daily basis in search of pattern formations. The thinking has been that if you found a pattern early in its formation, maybe you could capitalize on a trade by predicting where the security was headed.

The Cup-and-Handle pattern is a great example of how this works. Here is an image of the geometric pattern formation:

From a geometric shape standpoint, it is easy to see how the cup and the handle forms in the image above. But perhaps the more important question here is: why does the pattern form this way?

To answer that, let’s think about the cup-and-handle pattern from a behavioral finance/investor psychology standpoint.

The Psychology Behind a Cup-and-Handle Pattern

Point #1 on the chart is easy enough — the security reaches a new high or tests an old one, and investors take some profits off the table.

At point #2, the security has pared back some of the gains, but at a certain point, investors will see it as an attractive price to buy, which creates a support level. As buyers pour-in, the price ultimately climbs back up to the high it reached earlier (point #3).

Investors often figure that if the price can reach its old high (points #1 and 3) again, that would provide yet another optimal opportunity to take some profits off the table. However, this time the stock only traces back part of the way (point #4) before investors want to pile back in, hoping to capitalize the next time the stock retests the high. Indeed, once the stock finally crosses its support level (points #1 and #3), investors will see it as a “breakout” and will fear missing out on further gains, driving the price even higher. In addition, all those how could have placed short bets might get scared and start covering their short positions and driving the price even higher.

For investors watching this pattern form and then seeing it confirmed as a cup-and-handle, the ideal outcome would be to identify the breakout price and to trade with the trend. Two potential trades in this case of the example would be for the investor to either going long the security or perhaps buy some call options.

How Can an Individual Investor Find Patterns in the Sprawling, Ever-Changing Market?

Obviously, the monumental challenge for investors is how to identify patterns in the securities markets. Today, there are 3,671 domestic companies listed on US stock exchanges. But then there is also forex, ETFs, commodities, and the emerging asset class, cryptocurrencies. The time and manpower needed to scan charts is unfathomable.

But that's where Artificial Intelligence comes in.

Tickeron has developed Artificial Intelligence (AI) that is programmed to search for cup-and-holder patterns in the security market, but it can also search for patterns in forex, cryptocurrencies, ETFs, and other securities.

The tool is called the Pattern Search Engine, and it can revolutionize the way you trade. Using algorithms and AI is no longer limited to hedge funds and big institutional Wall St. firms. Now you, the retail trader, can use the same high-powered technology to scan the markets for patterns.

Here’s How it Works

Here’s a typical example of a Cup-and-Handle pattern identified by Tickeron’s AI, and this is how it would be delivered right to your inbox.

Cup-and-Handle (Bullish) Example

To note, while the above example is an actual stock and an actual confirmed and successful cup-and-handle pattern, it does not constitute investment advice nor is it a recommendation for the stock.

In the example above, Tickeron’s AI would have delivered this pattern and stock ticker to your inbox once it was confirmed, and then it would be up to you to trade at the breakout price in anticipation of the stock reaching its target price. In this case, the stock MRUS confirmed the cup-and-handle pattern on December 21, 2017, and by the 28th it had notched a +12.05% gain from breakout price to the target price.

What’s more, the cup-and-handle pattern works for both bullish scenarios and bearish scenarios. As you can see from the pattern chart below, the AI detected an inverse cup-and-handle pattern for the stock ticker CERS on December 20, 2017, and by the 29th the stock had plunged as predicted to the target price. Traders who received this pattern from Tickeron’s AI could have attempted to capitalize by potentially shorting the stock at the breakout price or purchasing put options.  

To note, while the above example is an actual stock and an actual confirmed and successful cup-and-handle pattern, it does not constitute investment advice nor is it a recommendation for the stock.

Does the Security Pattern Search Engine Really Work?

How do you know if Tickeron’s Artificial Intelligence — or any trading platform or strategy for that matter — really works?? The answer: statistics.

Tickeron tracks and backtests statistics for each cup-and-handle pattern detected by Artificial Intelligence, and compiles the data into a user-friendly format. The idea is that if an investor/trader can see past statistics for a particular pattern, it can better inform the investor whether or not the trade is worth the risk to him or her.

With Tickeron’s platform, an investor/user can obtain statistics about patterns the AI has detected and what percentage of them actually hit their target price — and what the potential gain could have been if the investor traded the pattern (or loss, if the pattern was not successful).

With just a few clicks, the user can obtain the following statistics:

  • How many total cup-and-handle patterns the AI has recognized

  • How many of those patterns actually reached the target price

  • The average return if the pattern was successful versus if it failed; and,

  • The average return of all patterns recognized.

  • A list of all of the securities (including cryptocurrencies) that the AI has identified over time in a cup-and-handle pattern.

The AI also has different “confidence levels” for how confident it is that the pattern will play out, and the user can adjust confidence levels higher or lower to obtain different statistics.

For example, if Tickeron’s AI is asked to detect all Cup-and-Handle Bullish Patterns with a 30%+ confidence level and a greater than 7% distance to the target price, then the user would discover that Tickeron’s AI has discovered 12,140 patterns meeting that criteria, having searched about 4000 stocks and about 10,000 ETFs. The user would also discover that 6,790 of those patterns actually reached the target price with average return +14%. Of the patterns that did not reach their target price, the average loss was about  -8%. The key here is that the AI was correct more than half the time, which is a strong statistic.

Test the Pattern Search Engine for Yourself

If you’ve never seen technology like this before, it’s because it has never been available to retail investors in this format. The idea is to provide retail investors with technology and tools to enable trading with massive amounts of data and analysis. The end result is arming retail investors with a high-powered, virtual research assistant: Tickeron’s Artificial Intelligence.

Interested in stock patterns? Identify 37 pattern types across thousands of stocks, ETFs and cryptocurrencies. Learn more here.

Related Ticker: CERS

CERS in downward trend: 10-day moving average crossed below 50-day moving average on March 21, 2024

The 10-day moving average for CERS crossed bearishly below the 50-day moving average on March 21, 2024. This indicates that the trend has shifted lower and could be considered a sell signal. In of 16 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .

Price Prediction Chart

Technical Analysis (Indicators)

Bearish Trend Analysis

The Momentum Indicator moved below the 0 level on April 10, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on CERS as a result. In of 101 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .

The Moving Average Convergence Divergence Histogram (MACD) for CERS turned negative on April 11, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 48 similar instances when the indicator turned negative. In of the 48 cases the stock turned lower in the days that followed. This puts the odds of success at .

CERS moved below its 50-day moving average on March 13, 2024 date and that indicates a change from an upward trend to a downward trend.

Following a 3-day decline, the stock is projected to fall further. Considering past instances where CERS declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .

The Aroon Indicator for CERS entered a downward trend on April 11, 2024. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.

Bullish Trend Analysis

The Stochastic Oscillator shows that the ticker has stayed in the oversold zone for 3 days. The price of this ticker is presumed to bounce back soon, since the longer the ticker stays in the oversold zone, the more promptly an upward trend is expected.

Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where CERS advanced for three days, in of 260 cases, the price rose further within the following month. The odds of a continued upward trend are .

Fundamental Analysis (Ratings)

Fear & Greed

The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is fair valued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (6.196) is normal, around the industry mean (22.341). P/E Ratio (0.000) is within average values for comparable stocks, (81.716). Projected Growth (PEG Ratio) (0.000) is also within normal values, averaging (5.589). Dividend Yield (0.000) settles around the average of (0.018) among similar stocks. P/S Ratio (2.075) is also within normal values, averaging (51.300).

The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating slightly worse than average price growth. CERS’s price grows at a lower rate over the last 12 months as compared to S&P 500 index constituents.

The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating weak sales and an unprofitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.

The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.

The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating that the returns do not compensate for the risks. CERS’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 87, placing this stock worse than average.

Notable companies

The most notable companies in this group are Abbott Laboratories (NYSE:ABT), Intuitive Surgical (NASDAQ:ISRG), Medtronic plc (NYSE:MDT), Boston Scientific Corp (NYSE:BSX), Edwards Lifesciences Corp (NYSE:EW), IQVIA Holdings (NYSE:IQV), Align Technology (NASDAQ:ALGN), Illumina (NASDAQ:ILMN), Exact Sciences Corp (NASDAQ:EXAS), Guardant Health (NASDAQ:GH).

Industry description

Medical specialties are companies that make equipment used by the health care industry. Equipment manufactured and distributed by these companies include dialysis machines, blood analysis equipment, surgical equipment, dental instruments, and diagnostic tools, among other items. Large companies typically aim to produce and distribute high-quality products across a broad market spectrum. Smaller firms are more likely to specialize in a particular market segment. Due to the industry’s close association with medical treatments, they typically have low sensitivity to macroeconomic fluctuations. Within this industry, Abbott Laboratories, Medtronic Plc and Thermo Fisher Scientific Inc. are some of the companies with multi-billion market capitalizations in the U.S. stock markets.

Market Cap

The average market capitalization across the Medical Specialties Industry is 7.38B. The market cap for tickers in the group ranges from 27 to 3.82T. MKYSF holds the highest valuation in this group at 3.82T. The lowest valued company is FOGCF at 27.

High and low price notable news

The average weekly price growth across all stocks in the Medical Specialties Industry was -4%. For the same Industry, the average monthly price growth was -4%, and the average quarterly price growth was 10%. IPDQF experienced the highest price growth at 72%, while MOTS experienced the biggest fall at -82%.

Volume

The average weekly volume growth across all stocks in the Medical Specialties Industry was 24%. For the same stocks of the Industry, the average monthly volume growth was -12% and the average quarterly volume growth was 21%

Fundamental Analysis Ratings

The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows

Valuation Rating: 50
P/E Growth Rating: 72
Price Growth Rating: 81
SMR Rating: 85
Profit Risk Rating: 87
Seasonality Score: -10 (-100 ... +100)
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A.I.Advisor
published price charts
A.I. Advisor
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General Information

a developer of the INTERCEPT Blood System for platelets and plasma

Industry MedicalSpecialties

Profile
Fundamentals
Details
Industry
Medical Specialties
Address
1220 Concord Avenue
Phone
+1 925 288-6000
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288
Web
https://www.cerus.com
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