A COFFEE CUP CAN MAKE YOU A QUICK MILLIONAIRE
‘Today’s Case Study CAPITAL FIRST Gave profit of Rs. 49,000/- in just 4 days on margin of Rs. 85,000.’
CUP & HANDLE PATTERN
William O’Neil an American entrepreneur & Stock broker introduced many astonishing things to the investing world. One of it is the Cup & Handle pattern
As its name implies, there are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl. After the cup is completed, a trading range is formed on the right-hand side and the handle is formed. A subsequent breakout from the handle’s trading range signals a continuation of the prior trend.
Trend : To qualify as a continuation pattern, a prior trend should exist. Ideally, the trend should be a young trend & not too mature. The more younger the trend, the higher are the chances that the pattern marks a continuation or the substantial upside potential.
Cup : The cup should be “U” shaped and resemble a bowl or rounding bottom. A “V” shaped bottom would be considered too sharp of a reversal to qualify. The softer “U” shape ensures that the cup is a consolidation pattern with valid support at the bottom of the “U”. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case.
Cup Depth : Ideally, the depth of the cup should retrace 1/3 or less of the previous advance.
Handle : After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag. The smaller the retracement, the more bullish the formation and significant the breakout. Sometimes it is prudent to wait for a break above the resistance line established by the highs of the cup.
Target : The projected advance after breakout can be estimated by measuring the distance from the right peak of the cup to the bottom of the cup.
Case Study :
Stock : CAPF Reco. Rate: 718 SL 690 TGT 770
1. In the Chart The CUP was formed @ point 1 @ 712 point2 & point 3 @ 712
2. Handle was formed with point 3 @ 712, 4 @ 686 & 5 @ 710
3. As soon as the stock crossed level 3 after hitting low @ point 4, the stock gave breakout at point 5
4. The estimated target was @ Rs. 770
To our surprise the stock didn’t stop at 770 but went as high as 854 in just 8 trading sessions
“Plan the Trade & Trade the Plan”