(4) Avoid Cup And Handle Pattern That Don’t Follow Volume Fluctuations
It is one of the most desirable things or trading signals of wrong cup and handle pattern. Cup with handle formation should always be accompanied with reliable volume fluctuations.
Ideally, volume should increase dramatically during the formation of left side of the cup. It is due to the panic selling from investors who are ready to dump their positions.
Volume should decrease in the bottom part at the base formation. It is due to the fact that traders begin to agree on a price & market starts consolidation.
Once again volume should increase during the breakout phase of the base as it starts proceeding upward to form the right side of the cup.
Finally, volume should taper off during handle formation. It is mainly due to profit booking by those who left out in earlier trend. However, heavily trading volume during handle formation indicates that more than just normal profit-booking is taking place.
At last, bullish breakout after handle formation should always be accompanied with huge increase in volume. However, if a financial instrument is forming cup pattern without following volume fluctuations then the pattern is likely to fail.
(5) Avoid Cup And Handle Pattern That Are Suspicious In Nature
It is one of the most critical things to avoid in cup and handle pattern. Cup with handle patterns are not as simple as one might be thinking. They can be highly suspicious in nature.
Some of the factors that can make cup & handle pattern suspicious in nature include shape & size of cup in real times, technical indicators, fundamental aspects, overall market sentiments, & many more.
Sometimes, you can find one or more unusual things in the technical charts. In such a scenario, you should avoid making positions or maintain strict stop loss order while trading.
For example, a normal growth stock declining in excess of 2 ½ times the decline of general market averages during a bull market.
Similarly, if fundamentals of a stock are deteriorating fast then next bullish run after pattern formation will be suspicious. Thus, you should stay away from such financial instruments.
- Cup and handle pattern: Cram