(2) Time Taken In Formation Of Cup With Handle Pattern
It is one of the most significant limitations of cup and handle pattern. Every chart pattern needs some reasonable amount of time for its formation. Cup with handle formation is not a different chart pattern in this regard.
You can’t tell about the exact time taken in the formation of cup and handle pattern. It is often a point of good debate among traders & investors.
Ideally, it should be formed within 6 weeks to 65 weeks time frame. But, it can also be formed much earlier then stated time. Sometimes, it can even take years for its formation.
However, the short-term & long-term patterns both tend to work well. Thus, you need to make positions only at the right time that can prevent you from being stuck in the sideways movement.
(3) Depth Of Cup With Handle Pattern
It is one of the most important limitations of cup and handle pattern. As stated earlier, cup with handle pattern is a bullish continuation pattern. Mostly, it is formed in the initial stage of an ongoing uptrend after the sell off.
Once sell off occurred, the pattern will start forming the base of the cup. But, how much depth is considered right in the formation of this pattern. It is again a point of debate among traders & investors.
Generally, depth or bottom of the cup should be at least 20 percent below the top of the left side of the cup. In extreme case, it should be no more than 40 percent below the top of the left side of the cup.
For example, if the top of the left side of cup was at $100 then the bottom or base of cup should be anywhere between $60 (40%) and $80 (20%).
Additionally, the depth of cup is also influenced by the overall market trend. In bullish market conditions, cups are more likely to be shallower in nature. However, in bearish market conditions or sharp corrections, cups are more likely to be somewhat deeper in nature.
- Cup & Handle Limitations: PsychologyToday