Solid base formation is the key for success of any pattern. These factors to identify strong base in cup and handle pattern are highly valuable.
A base is a technical term that is often used by technical analysts for referring to a type of stock chart pattern. Most of the base patterns indicate periods when a stock, or bond, or a commodity, levels off or corrects after prior advancement.
A base can also be referred as consolidation phase. It is extremely significant for the viability of any chart pattern. Generally, a base is considered strong when price of financial instrument is trading in very tight range.
On the other hand, if the trading pattern in a base formation is loose or choppy in nature then it could be weak base formation.
Therefore, you need to identify the strength of base formation before setting profitable targets after pattern completion. Here are 11 ways to find strong base formation in cup with handle chart pattern:
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(1) Fundamental Factors Of An Underlying Stock Or Bond
It is one of the most critical factors to identify strong base in cup and handle pattern. Every base in the cup with handle pattern is not equally stronger.
In technical charts, some base formation can be weaker in strength while in others it could be much stronger. Generally, fundamental factors of a stock dictate its future performance in the long term.
Some of the well-known fundamental indicators of a good stock include cash flow, return on assets, conservative gearing, history of profit retention for funding future growth, soundness of capital management for maximization of earnings & returns, increasing sales & quarterly earnings and many more.
These stock-specific fundamentals can help us to find intrinsic value of an underlying security. You just can’t invest in any stock merely depending on your luck & overall market direction. It is because when the market falls, fundamentals gain more significance.
Therefore, investors should analyze fundamentals of a company to enjoy greater confidence in a chart pattern. Finally, if fundamentals are favorable then strong base formation is much more likely to occur in stocks.
- Strong Base Formation: Shutterstock