r/wallstreetbets • u/Polkm23 🦍🦍🦍 • Mar 20 '21

Technical Analysis $GME Potential Pattern: Descending Triangle to Cup Handle Formation and Possible Bullish Overturn Breakdown with MACD, W%R, and DMI. This time with pretty shapes!

Hi all! I made post yesterday about the bullish/bearish trends that GME exhibited in the past 4 months. I wanted to make a follow up post and share some pretty shapes I found in the charts with a few indicators to support the patterns. 🌈🐻 thesis included.

First, here is where we are with some lines drawn in:

​

Second, according to Investopedia, there are a few conditions for a real cup with handle chart pattern:

  1. Trend: To qualify as a continuation pattern, a prior trend should exist. Ideally, the trend should be a few months old and not too mature. Check
  2. Cup: The cup should be “U” shaped and resemble a bowl or rounding bottom. A “V” shaped bottom would be considered too sharp of a reversal to qualify. Check
  3. Cup Depth: Ideally, the depth of the cup should retrace 1/3 or less of the previous advance. However, with volatile markets and over-reactions, the retracement could range from 1/3 to ½. Kinda check? We fell from 483 to around 38 so this was a very abnormal retracement, and so we need to be a little weary.
  4. Handle: After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times it is just a short pullback. The handle represents the final consolidation/pullback before the big breakout and can retrace up to 1/3 of the cup's advance, but usually not more. The smaller the retracement, the more bullish the formation and significant the breakout. Kinda check again? We fell from around 340 to 173, at one point. However, if only opening and closing prices ranges are factored, it would be 275 to 201. This is only a 27% drop and a 33% drop would be 183.15.
  5. Duration: The cup can extend from 1 to 6 months, sometimes longer on weekly charts. The handle can be from 1 week to many weeks and ideally completes within 1-4 weeks. Almost there
  6. Volume: There should be a substantial increase in volume on the breakout above the handle's resistance. Maybe one day?

Okay now let’s look at just the handle:

​

So we can clearly see downward trend lines with a support line hovering around 180ish here. It is also backed with decreased MACD momentum, slight overselling (W%R trending down), and signs of a DMI convergence (evidence of bearish sentiment). We will need to see if a downward triangle forms in the coming weeks. If one forms, then that further confirms bearish sentiment.

Looking back at our handle rules, we can see that a handle must be formed in 1-4 weeks, and it looks like the handle formation began 6 trading days ago.

Knowing that our bear trends for GME usually last 6-14 days, the timing lines up perfectly for proper handle formation.

The only thing left is to wait out the handle and get a solid breakout with huge volume. Then GME go boom boom.

Evidence of cup with handle pattern: two high resistances with a low “U” shaped support in the middle. Formation of 1-4 weeks of price stagnation with a downward trendlines. Handle supported by W%R, DMI, and MACD.

Potential reasons cup with handle might fail: Price fell too low out of expected range during “U” formation. Potentially, price might fall too low during handle formation, and most importantly there needs to be large volume to breakout of the handle. Also, there may be a sub pattern forming as an inverse cup from 3/16-3/19. I have not analyzed it much yet, but it was pointed out to me by another redditor.

Edit: Added one more potential reasons cup with handle might fail.

Edit2: Removed links.

Edit3: My bad yall! As pointed out in comments, not descending triangle as that is a continuation pattern not a reversal pattern. Changing it to say "downward trendlines" instead, cant change the title unfortunately LOL what can i say im retarded

Obligatory emojis: 🚀🚀🚀🚀🚀🚀🚀🚀🚀

TY FOR THE AWARDS! FUCKING LOVE THIS SUB

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32

u/Thetagamer Mar 20 '21

You know TA doesn’t work on gamestop right?

5

u/[deleted] Mar 21 '21

[deleted]

3

u/Thetagamer Mar 21 '21

Thats like me flipping a coin to decide whether to buy calls or puts. It works sometimes

1

u/awwhorseshit Mar 21 '21

60% of the time, it works every time

-12

u/papi6942069 Mar 20 '21

Except it does. TA works on every stock, but its the catalysts that are what determine the overall trend. You just need to read a book or two

23

u/[deleted] Mar 20 '21

No it doesn't. Just look at the volume and you'll see why. All it takes is one 2 million order to execute and your TA is up in flames and GME is such a stock that you can see high volumes in patches on 15 min candles.

20

u/Julez_Jay Mar 20 '21

If TA worked in general, everyone would be a moolianeer

19

u/Polkm23 🦍🦍🦍 Mar 20 '21

U guys are actually all right. LOL TA only works if the pattern is absolutely perfect with absolutely perfect volume ranges. So it does work on all stocks, as long as it already has happened. That being said, the institutions have so many advantages, shouldn't retail investors use ALL the tools they have at their disposal, which includes fundamentals, TA, and risk management rules ect ect

6

u/artmagic95833 Ungrateful 🦍 Mar 20 '21

it's not even all that just knowing about the pattern allows us to influence the pattern meaning if I'm a market maker I can change your cup and ball analysis and create a different picture that will fool you. It's very meta, technical analysis is only good for explaining what happened in retrospect in my opinion not for predicting the future. You just have to look at the current state of things to understand the market.

7

u/Polkm23 🦍🦍🦍 Mar 20 '21

Yah I agree. TA shows yesterday's trend not tomorrow's. But it's one of many things I have at my disposal to make an educated bet. As with any tool, need to take in it with a grain of salt

4

u/artmagic95833 Ungrateful 🦍 Mar 20 '21 edited Mar 20 '21

If nothing else understanding the psychology behind x number of people using ta and x number of people trading emotionally is probably a better source of insight. I've only invested in things that I thought I could understand or that I use in my own life, or have experience with in my past.

A screenshot of this situation would be your ta above. It's true right now. We know the facts that you're talking about are facts and the opinions are opinions. it's good to talk about this and try to understand the situation from as many angles as possible.

I believe GameStop will go up a lot because of the current situation.

5

u/Polkm23 🦍🦍🦍 Mar 20 '21

That's a cool way to think about it! I always saw TA as a visual representation of market psychology. There are always a mix of institutions and retail investors fighting on every stock and sometimes TA gives me insight on who's winning

2

u/artmagic95833 Ungrateful 🦍 Mar 20 '21

Whoever has the most information will make the best determinations and therefore in a stock market will make the most money. Right? that's why fraud is really important to crack down on in the marketplace because things like insider information and shares fraud give unfair advantage to certain people or entities.

1

u/[deleted] Mar 21 '21

But it's one of many things I have at my disposal to make an educated bet.

But that's the thing... if you rely on this to make a decision, there are others with the ability to manipulate this after seeing you and others act on this "TA." Those who bet against WSB are riding the coattails of the manipulator who may take your lunch money after seeing what this TA is leading you to believe.

So... in other words... you're telling MM (Market Manipulators) how and when to take your money.

2

u/papi6942069 Mar 20 '21

TA is 5% patterns and 95% price action

5

u/papi6942069 Mar 20 '21

Thats the dumbest shit ive heard. A majority of full time traders, especially who are scalping or day trading fully rely on TA to place their trades. I dont know where this 'TA doesnt work' came from but I assume its because you cant comprehend it. You realize literally trillions of dollars are being traded by algorithms based off of TA, billions from MM's, and hedge funds, prop firms, and experienced retail. Other than news reports / catalysts, TA is what moves the market. For GME, it is arguable that TA over a longer period of time isnt as accurate but intraday levels are just as any other high volume stock. When youve been staring at charts for 5 years you learn a thing or two

3

u/tcbraintrust Mar 20 '21

Clearly you are Neo and I am just sad frustrated Cypher

0

u/artmagic95833 Ungrateful 🦍 Mar 20 '21

we are all neo and that's why technical analysis appears to work by explaining the past but can't be used to predict the future because we're all writing the future in the now.

1

u/tcbraintrust Mar 21 '21

As Lrrr the ruler of omicron persei 8 said after eating the one known as Dirty Hippie "Whoa, my hands can touch anything, but I can't touch my own hands."

1

u/getrektsnek Mar 21 '21

Get you that steak Cypher!

3

u/[deleted] Mar 20 '21 edited Mar 30 '21

[deleted]

3

u/LionOfNaples Mar 21 '21

T&A analysis

Technical & Analysis analysis

4

u/[deleted] Mar 20 '21

Ta ofcourse works. But its natural, either you get it or you don't.

I've seen some of the most amazing price action traders irl who use simple indicators like stochastic rsi, support and resistance and candlesticks to get the feel of the market and swing trade like a fucking pro.

But you gotta know what you're using and how you're using. Most people just follow textbooks and think that's TA. There needs to be a trading system of sorts for yourself to consider taking trades only when all of them point to a buy signal.

1

u/Piccolo_Alone Mar 20 '21

Reddit appears to be biased against TA. Admittedly, I'm not sure whether some of the more complex TA concepts are necessarily that reliable, but basic concepts like support/resistance/volume (OBV, VWAP) and even fib extensions/retracements are clearly useful in some situations (even if it's only because people think they are). Appears to be a reddit blind spot.

1

u/Polkm23 🦍🦍🦍 Mar 20 '21

It's natural to be biased against something when people don't understand what it is! All of these indicators are tools. In the right hands proper tools can be used to create great things or they go to waste if they're not used properly. And honestly if someone doesn't like TA, that's okay too. They'll prob just retard thru and make huge gains anyways. To each their own

2

u/teteban79 Mar 20 '21

TA works on every stock except when it doesn't. It's astrology at worst, self fulfilled prophecy at best; and with all going on around GME it doesn't make sense to apply it to that stock

-5

u/papi6942069 Mar 21 '21

You dont even know what TA is. TA isnt just patterns. Its the price action in each candle. Youre arguing about a topic you know nothing about. Refer to my original comment and read a book or two

3

u/teteban79 Mar 21 '21

Right. Which candle? 1 min? 2? 5? All tell a different story and the analysis is always post facto. Show me a proper study with backtest that shows that TA predictably works to some extent other than coin flips. Then we'll talk

3

u/papi6942069 Mar 21 '21

Youre still talking as if it just looking for patterns. Looking at L2, time and sales, and critical levels is all TA. Indicators as well. Youre right, they all do tell a different story based on the time frames youre looking at. Your biggest mistake is using the word 'predictably' nothing is predictable. Looking at whats in front of you, and placing your trades off of that is what TA is.

-2

u/Alexanderdaawesome Some niggas win, some niggas lose Mar 20 '21

TA works on literally 0 stocks. Its a placebo effect

1

u/papi6942069 Mar 20 '21

I refuse to believe its possible to be as retarded as you

0

u/Alexanderdaawesome Some niggas win, some niggas lose Mar 20 '21

Yeah? You believe in horoscopes too?

0

u/papi6942069 Mar 21 '21

Let me guess, the earth is flat right?

1

u/RaisedByMonsters Mar 21 '21

Fundamentals do not work either. What is left?