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Cup and Handle Patterns

Cup and Handle Pattern on #AMZN

Cup and Handle Pattern on #AMZN

Cup and Handle pattern on #AMZN is one of the patterns of which I am very attached. Of course, not because of the reasons of why someone might expect. Let’s see what I’m talking about.

The Premise

If we take a look at the weekly chart of #AMZN (Amazon.com, Inc.) we’ll see one of the most scholastic cup and handle patterns. In this case, considering that the #AMZN is in a clear uptrend our cup and handle pattern is a continuation one. So, everything is simple and clear, so far.

cup-and-handle-on-amzn-weekly-chart
Cup and handle on #AMZN weekly chart

How did I trade the cup and handle pattern on #AMZN

As I already said, everything is simple and clear, so far. So, all I had to do was to place my buy stop order. I placed my buy stop order slightly above the July 7th 2019 weekly candle high. Hence, the order is open on February 2nd 2020. Remember, I manage this trade on weekly chart. Right after the breakout, the price goes straight to north in a 6% appreciation. So far, so good, right? Now, there are some reasons why I said that I’m attached of this trade. The first one is because it has a risk reward ration of 1:10. Therefore, this translates into the fact that for a risk of 0.5% the reward is 5%. Pretty good for a single trade, right?

Risk management

If you read this article: My Real Trading Experience or if you follow me for a while you already know that I don’t risk more than 0.3% to 2% per trade. Actually, almost all of my trades from the past few months were opened with a maximum of 0.5% risk. That’s because after the last year drawdown I decided to lower my risk for a while. One of the biggest problems with this trade is that, because of #AMNZ’s price, the minimum risk that I was able to use, in order to place and order, was 1.3% of my equity. Even if it fits into my risk rule (0.3% to 2%), the point is that if this trade will go against me it will equal with almost three losing trades of 0.5% in a row.

Cons about this trade

Where’s the problem? My risk reward ratio is usually 1:3. So, I can afford to lose three times to win once and to be at break even. Another reason why I shouldn’t open this trade is because even if it has a higher risk, it wouldn’t allow me to collect partial profits. You may wonder, why? That’s because I opened the minimum volume allowed by my broker. So, if I open the trade I have some limitations in trade management. I can only move my stop, close my entire position once or let it run. So, no chances to reduce my risk as soon as I’m at a comfortable profit level.

The outcome of the cup and handle pattern on #AMZN

Now, let’s see the outcome of this trade. Remember, we are on the weekly chart. So, after two weeks of strong appreciation the price start to show some weakness over the third week. When I saw this, I decided to allow a retest of the cup and handle’s old resistance and see what will happen. Unfortunately over the weekend, the coronavirus hit the Italy and the price opens with a gap into the downside on Monday. Also, the price hit my stop loss order, later that day.

the-outcome-of-the-cup-and-handle-on-amzn
The outcome of the cup and handle on #AMZN weekly chart

The conclusion

The most important conclusion from this trade is to remember to filter your trades. This isn’t something new but apparently I needed a reminder of it. Therefore, I made a mistake to place an order with so many cons. The main reason why I opened this trade is because I wanted. I felt like I needed to open it. And this is not right in trading. The best thing I should’ve done is to skip the trade and move on to the next one. Those are the reasons why I’m so attached about this trade. Because it reminded me about all those important lessons.

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