The key chart patterns all investors should keep in mind

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The key chart patterns all investors should keep in mind


But the most simple and reliable chart pattern out there is one that Cramer dreads.

Unfortunately, Cramer learned not to ignore the head-and-shoulders pattern the hard way when his charitable trust bought Alcoa — which spun off its aluminum business in November 2016 under the name Alcoa and is now known as Arconic — in 2010, when the stock price was in the low teens, and ultimately took a loss because it was too early to buy.

“Yes, just like a human’s head. That is the most frightening pattern in the chart book,” the “Mad Money” host said.

Another chart type that Cramer uses is called the cup-and-handle pattern. In fact, he has relied on this pattern to stay in stocks that he might have otherwise sold.

A cup-and-handle pattern is one that resembles a cup with a handle. The cup creates a ‘U’ shape with a downward drifting handle.

Cramer learned the lesson of the cup-and-handle opportunity in the stock of Domino’s. He was thinking about selling the stock when chartist Ed Ponsi set him straight and told him not to.

Ponsi pointed out that Domino’s had reached a pivotal moment and was getting ready to launch into a bigger move. Sure enough, Ponsi nailed it, and Domino’s proceeded to double and then some.

It turned out that while Cramer was nervous about the stock, it was actually consolidating and getting ready to power higher as the company embraced new technology and broke into digital ordering.

“Technicians and fundamentalists can co-exist,” Cramer concluded. “Make peace with them both, and I bet you will make a heck of a lot more money than if you are blind to one or the other and, certainly, to both.”

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