(4) Tight Trading Range Within Cup Base & Handle Formation Is Best For Consolidation
It is one of the most authentic rules to analyze cup and handle chart pattern. As stated earlier, cup with handle pattern should be formed as slow as possible. The downward phase of left side should form over a period of at least 2 weeks.
Generally, a typical left side correction lasts for 5 to 7 weeks or even more. This phase is then followed by formation of a base for consolidation. This base formation should take place in a very tight range.
A tight trading range is always considered satisfactory for shareholders. However, in case of a choppy trade, uncertainty is more among shareholders. Therefore, a stock or bond should always trade in a very tight range of 10% to 15% while forming the handle.
[Read Also: 10 Reasons To Buy Stock Trading In Very Tight Range]
(5) No Way To Make Sure Whether The Pattern Will Complete Or Not
It is one of the most unbeatable rules to analyze cup and handle chart pattern. Financial markets are full of a wide range of chart patterns that gets intermingled every now & then. This will ultimately makes recognition of pattern quite difficult.
Similarly, some patterns will form completely while others can be formed incomplete in nature. You need to wait for at least some reasonable amount of time before you can make sure about the pattern likely to be formed.
It is the reason why buying at bottom is not recommended. You should always wait for the stock to prove its strength by regaining most of the lost ground. Simultaneously, it should also have enough power & potential to regain its prior trend.
Therefore, volume breakout gains significance in such circumstances. A huge increase in volume during bullish breakout can help the stock to sustain the uptrend.
Apart from this, there’s no way to tell whether a stock is trading at the bottom of a cup until gets completed.
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- Profit targets of cup and handle pattern: Forextraininggroup
- Cup and Handle Pattern: Cram