Cup and Handle Chart Pattern
One of the most recognizable chart patterns is the Cup and Handle Chart Pattern. Like other patterns, this pattern can develop over a few weeks, months, or even years.
On the left we have the lip of the cup, and the left side of the cup. For the equity involved, something happened that caused the share price to drop pretty dramatically until it reached a bottom level of support, or the bottom of the cup. That drop in share price is represented by the left side of the cup. Interest in the stock dies for a while, and the share price languishes at the bottom level of support for a long time, forming the bottom of the cup.
After a few weeks, months, or even years, good things start to happen for the underlying equity, and the price starts to rise, forming the right side of the cup. Sometimes the reasons for the rising share price are clear , and communicated via press releases, and quarterly meetings. Other times, the share price just keeps rising with no explanation, at all.
Something to look for when you see a share price rising on no news, is the OBV, or on balance volume numbers, over a few weeks, or months time. If you see an increase in volume, by 200%, 300% , or greater, smart money may be flowing to the stock. They may know something you don’t know. They won’t tell you what they know, but volume indicators on a stock chart can help you to figure things out for yourself, and come to some logical conclusions, based on what the technical indicators on a stock chart are telling you.
As far as the cup and handle pattern is concerned, look for them when you’re scanning various stock charts. If you see the share price receding on a slight angle from the right lip of the cup, keep watching. If the share price rises to take out resistance at a level equal to the right lip of the cup, enter the trade. Why then? Because long-term resistance has just fallen, leaving very little overhead volume of shares to stop the share price from moving higher.