Trading Precious Metals Chart Patterns

09/25/2020 9:00 am EST

Focus: COMMODITIES

Suri Duddella

Trader and Author, suriNotes.com

Precious metals are rare, and their higher relative values are driven by rarity, industrial processes, and investments, states Suri Duddella of suriNotes.com.

The most popular precious metals for investing are gold, silver, and platinum. Precious metals stocks have rallied significantly in the year 2020. The underlying futures charts are forming key technical chart patterns like cup & handle in gold and platinum.

Here is a list of precious metals/miners stocks/ETFs/futures and their 2019 and 2020 performances.

metals

Cup & Handle Patterns

The cup and handle chart pattern was developed and popularized by William J. O’Neil in the 1980s through his CANSLIM methodology, Investor’s Business Daily articles, and his book How to Make Money in Stocks.

The cup and handle pattern resembles a cup with a handle and are continuation patterns that usually form in bullish trends. Most cup and handle patterns are reliable and offer great trading opportunities. They also form in all markets and in all timeframes. The “cup” formation is developed as a consolidation phase during price rallies from the round bottom formation over multiple weeks to months. The “handle” part forms due to a price correction after “cup” formation and before a clear breakout to the upside.

Cup and handle pattern structures show the momentum pause after reaching a new high in a U-Shape form, followed by another attempt to breakout. When this breakout from the rim of the cup fails, it starts to fall back to build the "handle" structure. Usually, the handle structures are small, and the handle depth should not exceed more than 50% of cup depth. The handle part of the pattern generates interest in buyers as they expect the pattern to break out from these levels. The pattern is valid only if price convincingly breaks out with increased volume above the rim of the cup levels (see chart below).

cup and handle

Gold Futures (GC) Cup & Handle Pattern

The Comex Gold continuous futures is forming a cup and handle pattern on its monthly chart and trading below the breakout level of $2,118.2 (see chart below). A long trade is entered above the breakout level with a stop placed below the lowest low of the mid-cup, $1,662.60, and the handle low $1,785.6. Profit targets are placed at $2,464.30, $2,681.00, and $2,834.00.

GC, M

Platinum Futures (PL) Cup & Handle Pattern

Platinum Continuous futures chart is forming a cup and handle pattern on its daily chart and trading below the breakout level of $1052.60. C&H patterns are valid only when price closes above the breakout level. A long trade is entered above the breakout level with a stop placed below the lowest low of the mid cup $810.20, and the handle low $830.30. Targets are placed at $1,236.70, $1,352.00 to $1,433.50.

PL

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