In the domain of
technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...
of
market price
A price is the (usually not negative) quantity of payment or Financial compensation, compensation given by one Party (law), party to another in return for Good (economics), goods or Service (economics), services. In some situations, the pr ...
s, a cup and handle or cup with handle formation is a
chart pattern
A chart pattern or price pattern is a pattern within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which ...
consisting of a drop in the price and a rise back up to the original value, followed first by a smaller drop and then a rise past the previous peak.
It is interpreted as an indication of
bullish sentiment in the market and possible further price increases.
[
The cup part of the pattern should be fairly shallow, with a rounded or flat "bottom" (not a V-shaped one), and ideally reach to the same price at the upper end of both sides. The drop of the handle part should retrace about 30% to 50% of the rise at the end of the cup. For stock prices, the pattern may span from a few weeks to a few years; but commonly the cup lasts from 1 to 6 months, while the handle should only last for 1 to 4 weeks.][Cup and handle at stockcharts.com]
The "cup and handle" formation was defined by William O'Neil"[William O'Neill (2009), "How to Make Money in Stocks: A Winning System in Good Times and Bad". 4th Edition, paperback, 464 pages. McGraw-Hill. ]
Context and interpretation
A cup and handle formation is considered significant when it follows an increasing price trend
A fad or trend is any form of collective behavior that develops within a culture, a generation or social group in which a group of people enthusiastically follow an impulse (psychology), impulse for a short period.
Fads are objects or behavior ...
, ideally one that is only a few months old. The older the increase trend, the less likely it is that the cup and handle will be an accurate indicator. The trade volume In capital markets, volume, or trading volume, is the amount (total number) of a security (or a given set of securities, or an entire market) that was traded during a given period of time. In the context of a single stock trading on a stock exch ...
should decrease along with the price during the cup and should increase rapidly near the end of the handle when the price begins to rise.
References
External links
Video Analyzing the Cup and Handle Pattern and the Inverted Cup and Handle Pattern
''Analyzing Chart Patterns: Cup And Handle''
at investopedia.com
{{DEFAULTSORT:Cup And Handle
Chart patterns