Technical traders are increasingly drawn to the cup and handle chart pattern, which signals potential bullish breakouts. This pattern resembles a cup with a handle when observed from the side, indicating that the stock may be primed for upward movement.
According to William O’Neil’s classic book, “How to Make Money in Stocks,” the cup and handle can last between seven weeks and 65 weeks, but typically it spans three to six months. The price correction from the peak to the cup’s bottom usually ranges from 12% to 15%, up to as much as 33%. For traders, the critical moment occurs when the stock price returns to its pivot point at the top of the handle.
While some traders actively seek out this pattern, others like Tim Sykes may not specifically look for it but recognize its presence when analyzing charts. Sykes noted a recent trade involving Beasley Broadcast Group Inc. (BBGI), which showcased a clean intraday cup and handle formation after an earnings report. He executed a dip buy during a price squeeze rather than specifically targeting the pattern.
To recognize the cup and handle structure, key steps include confirming an initial upward momentum, observing a pullback that forms a U shape, and ensuring a solid upward breakout. Traders must implement rigorous risk management strategies, including quickly cutting losses, as patterns can fail for various reasons.
Why this story matters:
- Understanding the cup and handle pattern can enhance trading strategies for individuals involved in technical analysis.
Key takeaway:
- The cup and handle is a popular bullish pattern among technical traders, signaling potential breakout opportunities.
Opposing viewpoint:
- While many traders rely on patterns like the cup and handle, critics argue that these formations can be misleading and often fail to predict actual market movements.
