A cup and handle chart may signal either a reversal pattern or a continuation pattern. A cup and handle formation is considered significant when it follows an increasing price trend ideally one that is only a few months old.
A cup and handle pattern is a formation that resembles the cup.
Cup with handle formation. If the handle is too deep and it erases most of the gains of the cup then avoid trading the pattern. The pattern s formation may be as short as seven weeks or as. The main body of the formation is like a u shape and further we have a small body or a downward drift which resembles a handle attached to the cup.
A continuation pattern occurs during an uptrend. A reversal pattern occurs when the price is in a long term downtrend then forms a cup and handle that reverses the trend and the price starts rising. The older the increase trend the less likely it is that the cup and handle will be an accurate indicator.
The price is rising forms a cup and handle and then continues rising. The cup and handle is considered a bullish signal with the right hand side of the pattern typically experiencing lower trading volume. The cup and handle formation was defined by william o neil context and interpretation.
This pattern is generally a bullish pattern as it follows a series of bearish sessions.