Gaps & Bullish Cup Breakouts by Ken Calhoun
This monthly column written by a professional daytrader and educator covers the general topic of breakout trading techniques. This month, he explains how you can improve your chances for success in gap trading by combining gap trades with easy-to-see cup entry patterns.
Gaps—they are one of the most powerful chart patterns you can trade, but many traders are uncertain about when to enter new positions. A simple confirmation signal you can use when trading gaps is to wait until after a bullish cup breakout forms. Entering your trade above this bullish cup can be a particularly effective momentum daytrading and swing trading strategy.
The reason this approach can be effective is because the left side of the cup shows any initial selling pressure following the gap up, while the right side of the cup shows new buyers coming in. You then wait and enter your long position above the initial cup pattern resistance level following the gap ...