(6) Price Pattern & Trading Volume During Base Formation
It is one of the most important factors to identify strong base in cup and handle pattern. Price pattern & trading volume during pattern formation is always an important factor.
You need to analyze them for each day & week during base formation. It will help you to evaluate the strength of base formation in cup with handle pattern.
Generally, the price of stock or bond should close in green territory for most of the time as compared to price closed in red territory.
Simultaneously, the trading volume should be good when it closes in green territory as compared to price closed in red. These two important aspects of a base formation in cup with handle formation can help you to select outperforming patterns.
[Read Also: 11 Best Reasons For Heavy Trading Volume In Stocks]
(7) Business Turnaround Activities
It is one of the most unique factors to identify strong base in cup and handle pattern. Economic slowdown is not a new thing in current scenario. It can happen in any sector, country or even all over the world.
When a company is hit by a severe crisis in its business activities then its share price is likely to fall quickly. In such a case, company management will analyze the situation & plan business revival strategies.
If the strategy goes in favor of the troubled company then its share price is likely to outperform in the coming quarters. At this stage, if stock of such a company is trading in the base of a cup with handle pattern then it is likely to be stronger in nature.
Here, you will notice that cup with handle pattern will be formed at the end of a bearish trend instead of an ongoing trend. On the other hand, troubled companies who are unable to sustain during a downturn will go nowhere.
Thus, you should also keep an eye on the successfulness of company strategy to turn around its business activities during pattern analysis.
- Strong Base Formation: Shutterstock