Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technincal analysis as a reliable method for speculating on future price direction of both equities (shares) and indexes. Technical Anyalysis in simple terms is the study of historic price movements in a chart in search of patterns or consistantly traded support and resistance levels. Today we are looking at a specific chart pattern that falls under continuation patterns, the Cup and Handle.
Appearance: A Cup and Handle pattern is comprised of:
- A fall in the share price and then a rise back up to roughly where the fall started – creating a cup shape.
- A down trending channel starts to form after the cup – creating the handle (this should be roughly 30-50% of the ‘Cups’ fall).
- The breakout of the sideways to bearish movement and then a sharp rise higher once again. The volume should also accelerate after breaking out of the channel.
Important Note: Be aware, this pattern could be the stock taking a breather or the direction is about to change to head Bearish. Wait to see the reverse to the upside and make sure the volume starts to increase.
Example: Newcrest Mining Limited (NCM)
In the last couple of months NCM has almost shown this pattern perfectly. As you can see from the below chart, the share price fell from $21.58ish. created a bottom at $18.58, then rose back up to the resistance level at $21.58. After creating the cup, the stock then turned bearish and created the handle, where it looks to be testing the downtrend resistance level currently. If the share price pushes through and turns bullish, we will have the confirmation of our ‘cup and handle’ chart pattern.
There are many ways that you could take advantage of these patterns. As a specialist in derivatives, we are able to profit on a stock when it falls as well as when it rises.
If you would like to learn how to pick a stocks direction, then Join us at our live face to face one day “Technical Analysis, Picking the Direction of a Stock” course.
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