I hope you guys have read my last blog on chart patterns. Here, I'm explaining a very particular "continuation pattern" which also has a high winning probability in the real-time market, make sure you read the whole blog, cause at the end, I'm gonna tell you about a stock which is forming the same pattern. According, to the pattern it has probabilities that it might go up by 30% in the time span of 1-2 month.
Basically, I'm talking about the Cup & handle pattern, It's a continuation pattern which is generally seen in the real-time market.
The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout.
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 or rounding bottom. As the cup is completed, a trading range develops 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 advance.
How it's gonna work?
Now I'm gonna break this pattern in several points and describe it in layman manner.
Trend: To qualify as a continuation pattern, a prior trend should be in an uptrend. Ideally, the trend should be a few months old and not too mature.
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.
Handle: After the higher forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times it is just a short pullback. The handle represents the final consolidation/pullback before the big breakout and can retrace up to 1/3 of the cup's advance, but usually not more. 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.
Duration: The cup can extend from 1 to 6 months, sometimes longer on weekly charts. The handle can be from 1 week to many weeks and ideally completes within 1-4 weeks.
Volume: There should be a substantial increase in volume on the breakout above the handle's resistance.
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.
Which stock to buy currently?
DABUR INDIA LTD
Yes, Its an FMCG sector's candidate. So, basically, the stock is moving in a wide range and forming two consecutive patterns inside each other. The stock is trading near its 52-week high range and according to technical analysis, it may gain its new high in the next couple of months.
You must be thinking how?
Let me explain to you what does the chart navigating!
Dabur is in an uptrend and forming an ascending triangle pattern which I've already explained in my previous blog. The most interesting fact is that inside this pattern one more pattern I've observed which is"cup and handle pattern" and it's fulfilling all the criteria.
Let me show you the clear picture of it-
Now I think you must've understood why? I'm talking about this stock. Today the pattern has given the breakout as you can see in the above chart with volume confirmation.
According to my analysis, we may see Dabur trading at @660 levels in the next couple of months.
Trade according to your convenience and risk appetite. Do let me know your views about this stock in the comment section.