(4) Trading Pattern During Base Formation
It is one of the most significant ways to find strong base formation in cup with handle chart pattern. Trading activities are not constant in stock markets. It can fluctuate widely depending whether share consolidation is taking place or share distribution is taking place.
If big investors or institutions are consolidating a given stock or bond then the base formation should be stronger. It is usually reflected in form of tight trading range.
On the other hand, when base formation is weak in nature then it usually trades in a choppy manner. It is mainly due to absence of big investors or institutions from the stock.
Most of the bases that swing 60% or more from top to bottom of a cup with handle pattern are likely to be weak in nature. This weakness in base formation is reflected through wide & loose trading activities.
Thus, strong base formations have areas of tight price movements that indicate supporting action.
[Read Also: 10 Reasons To Buy Stock Trading In Very Tight Range]
(5) Time Taken For Base Formation In Cup With Handle Pattern
It is one of the most unbeatable factors to identify strong base in cup and handle pattern. Most of the chart patterns that are stronger in nature usually take some reasonable time in its formation.
It is usually reflected in form of U-shaped base formation. A stronger base can’t be formed in a quick manner, except in exceptional cases.
Generally, a long & rounded base in cup with handle pattern is considered best & stronger for a stock rather than short & V-shaped base formation. A fair amount of time allows the stock necessary time needed to digest the sharp move.
On the other hand, base formations that take place in a very short time are likely to be faulty in nature. It is due to absence of constructive areas needed for a stronger move.
Therefore, you need to look towards a base in relation to the time spent in its formation.
- Strong Base Formation: Shutterstock