A cup with a handle chart pattern, as its name implies, is a pattern of price movement on the trading chart that resembles a cup with a handle. The cup part is formed by a “U”-shaped price movement, while the handle is created by a brief price pullback from the cup’s edge.
The pattern demonstrates the stock’s historical movement and aids in our ability to forecast its future course. This pattern takes time to develop, though. The formation might last seven weeks, 65 weeks, or even longer. An obvious entry point, a stop-loss level, and a profit goal are all offered by the cup and handle price patterns.
How can a cup and handle pattern be recognized?
Any amount of time may be used to construct the pattern. But it’s best to concentrate on the daily period. As a continuation pattern, there must have been a preceding trend, which must first be understood.
The bullish cup and handle pattern’s identification:
The bullish cup and handle pattern can only develop in an uptrend that has already been formed.
However, the trend shouldn’t be mature because that would lessen the likelihood that it would last. A typical price decline that gradually turns around to form a “U” shape creates the cup. Instead of a severe “V” form, the bottom should be circular or bowl-shaped.
At the bottom of the “U,” a rounded bottom guarantees the presence of consolidation with sturdy support. Although it’s not required, the design might feature high points on both sides of the cup. Another thing to watch for is the cup’s depth. Not too deep of a cup should be used.
The “handle” is the decrease in security price that appears on the right side after the cup has formed. It is a brief retreat with a downward slope. One may interpret this as a little consolidation before the significant breakthrough. While the cup’s length can range from 7 to 65 weeks, the formation of the handle may take up to 4 weeks.
It is necessary to mention an essential point. In both situations, volume data may be highly beneficial. Volume should go down while the pattern takes shape, and it should go up as the handle breaks or breaks down after it has formed.
What may be a good entry point, price objective, and stop-loss?
An optimal entry price is the one at which the upper trend line is broken. At the breakout candlestick’s closing, security can be bought. For this pattern, there are two price targets. The first target is located at an estimated distance equal to the handle’s depth.
Starting at the point of breakout, the second objective is equal to the depth of the cup. A stop-loss order is required if, after purchasing at the breakout, the price declines rather than increases. The stop-loss should be set at a price that is lower than the handle’s lowest point.
The Cup and Handle Pattern’s drawbacks include:
The coin always has two sides – so similar restrictions apply to the cup with handle pattern. The primary drawback is how long it takes to establish a distinct pattern. It could take one to six months, or perhaps more, for a pattern to fully develop. The investment choices may be delayed as a result.
Another problem is the cup’s depth. A shallow cup can occasionally herald a powerful bull run, while a deep cup can occasionally be a false alarm. The applicability of this idea is further limited in some uncommon cases by Cups developing without handles. The cup and handle pattern, like other technical patterns, can be inaccurate in markets with little liquidity.
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