Courtesy of Market Tamer
Shocking Market Move, But Will It Continue?
Improve Your Market Timing: The Cup & Handle Chart Pattern
- The Cup & Handle is a bullish continuation pattern that starts with the stock pulling back after a bullish trend and forming a rounded bottom that resembles a cup. It then ascends to form the backside of the cup and consolidates into a flag or handle. The handle should ideally form at the level of the beginning of the downtrend on the front side of the cup but it is still a valid pattern even if the back lip of handle of the cup forms lower than the front lip.
- The entry point is the high of the handle and the upside potential is usually measured by the depth of the cup added to the breakout point.
- After pulling back and trading in a relatively tight pattern and forming a rounded bottom and then ascending to the consolidation handle, profit taking begins to appear as the stock flattens on deceasing volume.
- The continuation of the bullish move occurs when the stock breaks above the high of the handle with increasing volume.
- An astute trader will realize that the bearishness is temporary and the breakout represents the investment communities’ continuing participation in the longer term upside move.
