In the domain of technical analysis of market prices, a cup and handle or cup with handle formation is a chart pattern consisting of a drop in the price and a rise back up to the original value, followed a smaller drop and a rise past the previous peak. It is interpreted as an indication of bullish sentiment in the market and possible further price increases.
Introduced by William O'Neil in 1988, the cup and handle is a bar chart pattern that resembles a cup with a U-shape rounded bottom and handle that marks a downward drift.
Basically, this pattern displays a trend in upward performance of stocks that is characterized by slight downward pauses before it resumes its upward direction. Simply stated, the cup and handle pattern shows a bullish continuation movement. It is indicative of upward price movements of stocks in the long run.
A trading range successfully develops when the cup with a rounded bottom is completed, while a subsequent breakout that results from the trading range of the handle signals a continuation of a prior advance.
Here are some points that you should keep in consideration to detect this pattern:
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