When this pattern is found in an uptrend, it is considered a bullish pattern, as the market range becomes narrower into the correction, indicating that the downward trend is losing strength and the resumption of the uptrend is in the making. When this pattern is found in a downward trend, it is considered a reversal pattern, as the contraction of the range indicates the downtrend is losing steam. The falling wedge pattern is characterized by a chart pattern which forms when the market makes lower lows and lower highs with a contracting range. A Retest of previous resistance is not required to touch or come within several ticks of the old high however, the further the top of the handle is away from the highs, the more significant the breakout needs to be. Volume - Volume should decrease as prices decline and remain lower than average in the base of the bowl it should then increase when the stock begins to make its move higher, back up to test the previous high. Avoid handles which are overly deep also, as handles should form in the top half of the cup pattern. Depth - Ideally, the cup should not be overly deep. It is worth considering the following when detecting cup and handle patterns: Length - Generally, cups with longer and more "U" shaped bottoms provide a stronger signal. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. As a stock forming this pattern tests old highs, it is likely to incur selling pressure from investors who previously bought at those levels selling pressure is likely to make price consolidate with a tendency toward a downtrend trend for a period of four days to four weeks, before advancing higher. ![]() A subsequent breakout from the handle's trading range signals a continuation of the prior advance. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. The cup forms after an advance and looks like a bowl or rounding bottom. As its name implies, there are two parts to the pattern: the cup and the handle. It was developed by William O'Neil and introduced in his 1988 book, How to Make Money in Stocks. TradeSmart University, it's teachers and affiliates, are in no way responsible for individual loss due to poor trading decisions, poorly executed trades, or any other actions which may lead to loss of funds.This pattern is a bullish continuation pattern that marks a consolidation period followed by a breakout. Students and individuals are solely responsible for any live trades placed in their own personal accounts. ![]() ![]() TradeSmart University encourages all students to learn to trade in a virtual, simulated trading environment first, where no risk may be incurred. Options trading involves risk and is not suitable for all investors. ![]() Individuals must consider all relevant risk factors including their own personal financial situation before trading. The risk of loss trading securities, futures, forex, and options can be substantial. RISK DISCLAIMER: The information presented on this website and through TradeSmart University is for educational purposes only and is not intended to be a recommendation for any specific investment.
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