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00days 00hours 00minutes 00seconds 2020-12-25 12:00 AM     00days 00hours 00minutes 00seconds 2020-10-25 12:00…

What’s one of the biggest mistakes most traders make?

Nate knows better than anyone.

A handful of bad trades can mess with your trading account, if not your head. You start to take it personally and blame yourself.

And then you win a few trades, your trading account improves, and you feel better.

But supposing both these ends of the spectrum of trading emotions are just a different type of suffering?

My colleague and #1 options trader Nate Bear thinks so. And he should know.

Many traders go through an up, down, up, down ride like this, and when I interviewed Nate he took me along his agonizing 10 year journey to becoming a successful trader.

Nate describes “blowing up three trading accounts” until – after a total of 10 years of trading ups and downs – finally managed to break through and become the successful trader that so many RagingBull traders know today.

What kept him at it after so many failures? Nate’s interview is required listening for every trader.

Next time you feel like quitting or are just sick of apparently banging your head against the Wall (Street), take a moment and listen to Nate.

Share wealth, wisdom, and a massive trading breakthrough with Nate Bear in this compelling episode!

Sincerely,

Ben Sturgill

Author: Ben Sturgill

Ben leads two services at RagingBull. IPO Payday can help you pinpoint, position, and profit from IPOs. In Daily Profit Machine Ben guides day and swing traders to profit by trading the SPY Index. Ben hosts the RagingBull.com weekly podcast WealthWise where he shares thoughts on wealth and success with traders, businesspeople, entrepreneurs, and experts to uncover and share the wisdom needed to live a wealthy life.

Chart patterns occur when the price of an asset moves in a way that resembles a shape, such as a triangle, flag, or in this case, a cup and handle.

These patterns are formed based on human psychology and make for a visual way to trade the markets.

An added benefit is many chart patterns are all-inclusive, meaning they provide a trader an entry point, stop-loss location for risk management, and price targets to exit the trade at a profit.

What’s there not to love about trading patterns?

Well, there’s a lot of material on the internet, and many of it is fake news these days.

So without proper education, training, and a system to guide you, chances are you are just gambling.

Are you ready to roll up your sleeves and learn more about the Cup and Handle trading strategy? 

 

How To Trade The Cup and Handle Chart Pattern

 

Like many chart patterns, the Cup and Handle can occur on lower level timeframes, like a one minute chart, and on higher-level timeframes like a daily or weekly chart.

The Cup and Handle pattern is considered a bullish reversal pattern and has two parts to it.

The Cup: The market shows signs of bottoming and has bounced off lows.

The stock is approaching it’s resistance levels and prior high prices.

The Handle: After the stock has made its “U” pattern, it will experience a period of consolidation that forms the Handle.

Here is an example of a Cup and Handle pattern.

 

 

Here’s the idea behind this pattern.

As the Cup is being formed, the market is showing signs of weakness and strength by bottoming near prior support and bouncing back towards the highs.

Next, the price action is weak at the resistance caused by the cup and forces the price of the stock to go sideways or downward.

This forms the Handle in the Cup and Handle pattern.

Note: If you see a larger sell-off that goes lower than the lows formed in the Cup, this will invalidate the pattern and indicates to the trader that the markets are not ready to head higher.

But in this example, the lows were held and a consolidation channel was formed (with the exception of two bars, which is acceptable) that created the Handle.

Since prices are holding at resistance and creating a channel, that’s a sign of strength and is telling you that the buyers are willing to continue buying stock at this level.

Finally, once price trades above the upper resistance formed by the Handle, the pattern is “confirmed” and the market is now going to continue heading higher.

Pro Tip: The best Cup and Handle patterns have a shallow retracement, not exceeding ⅓ of the cup’s total size.

 

Where To Enter The Trade


The Cup and Handle is a bullish reversal pattern that signals to traders the markets are looking to move higher.

Ideally, a trader would want to wait for the Handle to form after the Cup has been identified.

This is then confirmed when the price breaks above the “Handle”, and that is where you would want to enter the trade.

There are two choices a trader can make at this point.  

 

  1. Wait for the close
  2. Buy the breakout price

 

There are pros and cons to each.

Let me explain…


Wait for the close


The good thing about waiting for the close is that it’s far less prone to a false breakout.

However, there are times where the markets will close much higher and you will get a poor entry price.

This results in widening the level between your entry price and your calculated stop-loss and result in taking on much more risk than originally calculated for the trade.

Buy the breakout price


The good thing with buying the breakout price using a limit order is that you can place the order slightly above the highs of the handle and if the breakout is real, this is the best price to get into the trade at.

Unlike waiting for the close, this price level gives you the optimal risk to reward ratio and ensures you are not taking an added risk due to a poor entry price.

Unfortunately, there is no best approach here.

You should go with the execution-style that best fits your trading and risk tolerances.

This will result in much less error and will keep you trading consistently as a trader in the long run.

Once you are in a trade, you need to know where to exit in case it goes against you.

This is when you use a stop-loss order.

Next…

Where To Place Your Stop Order


Now, a stop-loss order gets a trader out of a trade if the price drops instead of heading higher after the breakout occurs.

The stop loss aims to control risk to the trader in the event that the trading pattern is invalidated.

Essentially, you want to place your stop loss at a level where that if the market trades there, the trading pattern is invalidated as well.

How To Determine If A Cup and Handle Is Invalidated


When looking to identify if the pattern is broken, a trader would want to keep a close eye on the consolidation pattern that is forming at the handle.

Why?

Remember, a consolidation pattern indicates to traders that there are price “wars” occurring.

When breakout traders are searching for these patterns, once a direction is taken it indicates that is the new trend for the stock to go in.

So if you are looking for the consolidation to result in higher prices after the cup and handle, seeing price below the handle is signaling a failure in the pattern.  This now indicates that the stock is looking to head lower.

Some traders recommend placing stop orders right beneath the upper third (or half) of the cup for the best risk to reward levels.

 

 

Pro Tip: The best way to know if the pattern is invalidated is when the Cup’s low is broken, not the handle. This ensures that you remain in the trade if the pattern changes into a double bottom and continues higher afterward. Not recommended for new traders, the risk to reward level is the worst at this stop location and may result in “doubling down” on your position.

Learn more about where to place your stop losses and avoid being stop-hunted by HFT’s

Picking a The Best Exit


There are two types of exits a Cup and Handle trader can utilize on the position.

  1. Placing a target exit
  2. Riding profits using a trailing exit  


Target Exits


There are two types of target exits.

  1. Measured Move
  2. Fibonacci Extension


Measured Move


In order to determine the target, a trader would want to first calculate the height of the cup.

Next, you would take that value and add it to the breakout point on the handle.

For example,

If the cup forms between $200 and $199, and the breakout point is $200, then the target is $201.

In the event that the left side is smaller than the right side (or vise-Versa), it’s best to take the shorter of the two sides in your calculations.

Fibonacci Extension


Another method for identifying target prices after a breakout is using a Fibonacci extension indicator. You would want to draw the extension from the cup’s low to the high on the right of the cup, and connect it to the low of the handle. The best location for a target to be placed is at between the 1 and 1.618 levels

For example:

 

 

You can see that the price broke out from the upper resistance of the handle, and traded almost exactly to the 1.00 Fib level before retracing back down.  

 

Trailing Exits


Another way to exit the trade is to let the markets take you out instead of removing yourself from the trade.

This is favored over targets by many traders who want to give their trade a shot to win big when taking a swing position.

For example:

 

 

If the breakout is confirmed and momentum is on your side, a trader can reap serious rewards by following the trend and letting it run instead of taking a target exit.

Pro Tip: There are pros and cons to both exits used, and one is not better than the other. Use what fits your style and risk tolerances the best to keep you profitable and consistent in your trading.  

Conclusion


So there you have it, a reversal pattern that you can add to your toolbox and begin using.

What you learned in the Cup and Handle strategy guide:

 

  • The Cup and Handle is a bullish reversal chart pattern that can signal the start of a new uptrend.
  • A common entry technique to trade the breakout and go long
  • Set targets using a measured move price or Fibonacci extension level

So what do you think of the Cup and Handle pattern?  

Click here to see more strategies like these and get options alerts for trading the SPY

Author: Ben Sturgill

Ben leads two services at RagingBull. IPO Payday can help you pinpoint, position, and profit from IPOs. In Daily Profit Machine Ben guides day and swing traders to profit by trading the SPY Index. Ben hosts the RagingBull.com weekly podcast WealthWise where he shares thoughts on wealth and success with traders, businesspeople, entrepreneurs, and experts to uncover and share the wisdom needed to live a wealthy life.

I love a good night’s sleep. 

Without it, I wouldn’t have enough energy to do everything that I do — run IPO Payday and Daily Profit Machine here at Raging Bull, spend time with my family, help lead a campus ministry, and manage other streams of income — all while keeping a big smile on my face. 

So when I see an ad for a mattress on the top of my google search page that says, “Over 50,000 five-star reviews,” “Join over 1,000,000 happy sleepers,” and “100-night trial, painless returns,” you know I’m interested. 

Well, it just so happens that Casper, the company behind this trending and ergonomic mattress, will soon IPO. 

As if dreaming of sheep wasn’t enough already, the dreams of sheep and money that I’m anticipating when this company debuts could help me wake up fresh and profitable in the months and years ahead. 

So today, I want to talk about everything we should know about this IPO and why I’m leaning short on this company right out of the gate.

 

Casper’s Customers Will Sleep Like Babies… While Its Investors Lie Wide Awake

 

Casper has a great product and it’s a nice little company, but I don’t think it should be going public. 

Sure, it carved out a niche in the mattress industry with a soft yet firm material and great branding. But I’m not confident it can live up to the full potential described recently by the company’s CEO, Philip Krim. 

He said recently, “What Nike did for exercise, what Whole Foods did for organic foods, we want to do for sleep.” 

I simply still have doubts. While the company’s revenues are growing — annual sales were $358 million in 2018, a 38.7% increase from 2017 — the company still has yet to turn a dime. 

The company has faced more and more imitators in the past couple of years, which is a cause for concern over its long term prospects. 

One key set of numbers doesn’t look great either. Net losses were $92 million in 2018 and $73 million in 2017 — in part due to the tremendous cost of shipping these “beds-in-a-box” that would have you believing the product came from Tajikistan. 

Also, the marketing of the product has been anything but word of mouth, as the company spent $422.8 million between 2016 and 2019 to seize more eyeballs — although rapper Nas and actor Ashton Kutcher both have a venture capital stake and are probably pimping it on social media. 

In 2019, Casper had a $1.1 billion valuation, thanks to lots of other private funding that included retail giant, Target corp. 

The company plans to list on the NYSE under the symbol CSPR, so get ready to see those four letters as my alerts hit your inbox in 2020.

 

The Lead Up To Casper’s IPO

 

Of course, the fundamentals of Casper’s business model will be a factor in its pricing. However, as we all know, sometimes the market doesn’t care a whole lot about them. You see, traders are forward-looking and they’ll also be focused on the hype.

The global sleep economy will play a factor in the pricing of the IPO. According to Casper, a research firm noted the global market size for the “sleep economy” reached a whopping $432B, and is projected to grow by 6% annually to $585B by 2024.

There’s also one interesting fact that I found in Casper’s SEC filing. Influencers will play a role. Casper pays people with massive online followings to talk about its products… and if there’s positive feedback, it could directly affect the stock’s price on its first trade date. On the other hand, if they receive negative feedback… well, the IPO could turn into a dud real quick.

It’s still early for this IPO, so I’ll be keeping a close eye on it.

For the most part, I’ll be analyzing SEC filings, as well as any other news that comes out about Casper. As the IPO date approaches, there will be a few things to focus on:

  • The lead underwriters and how other IPOs they take to the market are performing (Goldman Sachs, Morgan Stanley and Jefferies are the lead underwriters).
  • The company will list its shares on the New York Stock Exchange (so I don’t think it will be as volatile right out of the gate).
  • The demand, shares offered and pricing range.

On the day of the IPO, I’ll make sure to send my clients a trading plan, and it’ll be as simple as red, green, or yellow light. Not only that, but after the IPO, I’ll be focused on the lifecycle of Casper. If and when the options go live, I may look to buy puts if I see weakness.

If you want to have a clear-cut plan and edge when Casper IPOs, check out this training lesson here.

 

Author: Ben Sturgill

Ben leads two services at RagingBull. IPO Payday can help you pinpoint, position, and profit from IPOs. In Daily Profit Machine Ben guides day and swing traders to profit by trading the SPY Index. Ben hosts the RagingBull.com weekly podcast WealthWise where he shares thoughts on wealth and success with traders, businesspeople, entrepreneurs, and experts to uncover and share the wisdom needed to live a wealthy life.