A cup and handle pattern is a reversal or continuation pattern. You will find it as a reversal in a downtrend or a continuation in an uptrend. This pattern occurs when a stock’s price peaks at first. It will gradually keep falling, shifting somewhat sideways. Then the price will gradually move up back towards the high made by the peak. This is the cup and the two peaks form the neckline. It will form a “U” shape. The handle forms when the price begins to fall again but not too deep into the cup. Ideally, the handle should not go more than 50% into the cup. The handle will vary. Sometimes the price may decrease, sometimes the price will remain relatively flat. The price will then begin to move up towards the neckline. The key to the reversal or continuation is the price must close above the neckline. This pattern requires a longer time frame to develop. It can take a minimum of 8 weeks. We have found these more on a 2 year chart. If you spot a cup that is more of a “V” shape, avoid it for it has a lesser chance of success. The longer this pattern takes to develop, the better the odds are of its success. We will provide as many examples as we can find to help you identify this pattern.
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