| Handle Characteristics of Stocks Trading |
|
In the cup and handle stocks trading model, the formation of the handle area generally takes more than one or two weeks and has a downward price drift or shakeout (where the price drops below a prior low point in the handle made a few weeks earlier) near the end of its down-drifting price movement. Volume will dry up noticeably near the lows in the handle's price pullback phase. There are a few exceptions: Cups without handles have a somewhat higher failure rate, although many stocks do successfully advance without forming a handle. When handles do occur, they must always form in the upper half of the overall base structure, as measured from the absolute peak of the entire base to the absolute low of the cup. The handle should also be above the stock’s 200 day moving average price line. Handles forming in the lower half of an overall base or completely below the stocks 200-day line are weak and failure-prone. Demand up to that point has not been strong enough to enable the stock to recover more than half its prior decline. Additionally, handles that consistently wedge up (drift upward along their price lows or just go straight sideways along their lows rather than drift down) have a much higher probability of failing when they break out to new highs. This upward-wedging behavior along low points in the handle doesn't let the stock undergo the needed shakeout or sharp price pullback after having advanced from the low of the base into the upper half of the pattern. This high-risk trait tends to occur in third- or fourth-stage bases, in laggard stock bases, or in very active market leaders that become too widely followed and therefore too obvious. You should beware of wedging handles.
|
