CUP AND HANDLE

CUP AND HANDLE

 

The cup and handle formation (also called the cup with handle formation) is a bullish chart pattern that is defined by a chart where a stock drops in value, then rises back up to the original value, then drops a small amount in value, and then rises a small amount in value.

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The cup and handle formation (also called the cup with handle formation) is a bullish chart pattern that is defined by a chart where a stock drops in value, then rises back up to the original value, then drops a small amount in value, and then rises a small amount in value.

THERE ARE TWO TYPES OF CUP AND HANDLES 

1.) BULLISH

2.)BEARISH

                                       BULLISH

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BEARISH

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 Important characteristics

• Trend: A cup and handle formation should follow an increase trend, ideally one that is only a few months old. The older the increase trend, the less likely it is that the cup and handle will be an accurate indicator.

• Shape: In a cup and handle formation, the cup must always precede the handle. The cup should form a rounded bowl shape, with an obvious bottom. A V-shaped bowl is said to be avoided. The cup should be fairly shallow, and ideally should retrace about 30% to 50% of the previous increase.  The perfect pattern would have equal highs on either side of the cup, but this is not always the case.

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• Duration: The cup should last 1 to 6 months, while the handle should only last for 1 to 4 weeks. These are only approximate values, however; a cup may last anywhere from a few weeks to a few years.

• Volume: The volume of the stock should decrease along with the price during the cup and should increase rapidly near the end of the handle when the price begins to rise.

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 Significance for traders

 A cup and handle formation is considered to be a bullish signal, and is usually followed by a sharp rise in value. A rather accurate estimation of the expected price rise is found by measuring the price rise from the bottom of the cup to the right side. The reason for a price rise following a cup and handle formation is largely unknown. Likely because many traders know about this signal and buy when they see it forming thus artificially creating the bullish uptrend.

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