|
 |
The cup and handle formationThe cup and handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. As its name implies, there are two parts to the pattern: The cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. After the cup is completed, a trading range develops and the handle is formed. A subsequent breakout from the handles trading range signals a continuation of the prior advance. The cup should be “U” shaped and resemble a rounding bottom. A “V” shaped bottom would be considered too sharp of a reversal to qualify. The softer “U” shape ensures that the cup is a consolidation pattern with valid support at the bottom of the “U”. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case. After the high forms on the right side of the cup, a pullback forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times just a short pullback. The handle represents the final consolidation/pullback before the breakout. lt should retrace 1/3 or less of the cup’s range. The smaller the retracement, the more bullish the formation. Once the high of the right side of the cup is taken out. the entry is met. The stop is placed under the low of the handle. I like to trade the cup and handle after the first half an hour of trading based on a 3 or 1 minute chart. Here's what it look like:
We have mow looked at the main figures you should be able to spot on daily and even intra-day charts. This combined with the knowledge about the important candlesticks will give you an edge over many investors to determine the future movement of any stocks. Now let's move to the next section entitled Stock trading tactics. 
|
|
