To The Moon

During a downturn, it is time for us to foresee the move by a stock with terrific fundamentals. If suc stock breaks out with force, then we will more likely grab shares at a proper buy point.

We can always think of the buy point as the ground floor of a potential elevator-like advance to new highs. And it is not enough to just buy the right stock. You have to buy the right stock in the right way at the right time.

If you have been studying patterns, one might have a strong command of one of the most important patterns in growth investing: the cup with handle.

The pattern allows us to be consistent in your buying. We would essentially enter a stock only when it has reached the point at which it can rise fast in a relatively short time frame.

Cup With Handle Pattern Have Been Around For More Than A Century

If you have been in the stock market long enough, you would realise that human nature has not changed. Greed and fear still drive the market.

Currently, the index is showing Fear, so when the market is in fear mode,we may consider a more conservative approach. This could include: 

• Focusing on risk management

• Seeking out safe-haven assets

• Diversifying into assets or sectors that have been overly discounted

However, history shows that staying invested and even buying stocks during volatile times can be beneficial in the long run.

How to Trade the Cup and Handle

There are several ways to approach trading the cup and handle, but the most basic is to look for entering a long position.

The image below depicts a classic cup and handle formation. Place a stop buy order slightly above the upper trend line of the handle. Order execution should only occur if the price breaks the pattern’s resistance. Traders may experience excess slippage and enter a false breakout using an aggressive entry.

Alternatively, wait for the price to close above the upper trend line of the handle, subsequently place a limit order slightly below the pattern’s breakout level, attempting to get an execution if the price retraces. There is a risk of missing the trade if the price continues to advance and does not pull back.

Defining The Buy Point - Cup With Handle

A buy point is a price level at which a stock is most likely to begin a significant advance. It also points to an area of the chart that offers the least amount of resistance to price progress.

To find a buy point in a cup with handle pattern, you can estimate it by adding the distance from the cup's top right to its bottom to the buy point. 

Here are some other things to consider when identifying a cup with handle pattern and finding a buy point:

Pattern formation

The cup with handle pattern is a bullish continuation pattern that forms after an advance. The cup is bowl-shaped, and the handle forms after the cup's right side high. The handle can retrace up to 1/3 of the cup's advance. 

Pattern length

A cup with handle pattern should be at least seven weeks long. 

Pattern shape

The cup should have a longer, more "U" shaped bottom, and avoid sharp "V" bottoms. The handle should form in the top half of the cup pattern and shouldn't be deeper than 50% of the cup's size. 

Pattern volume

Volume should decrease during the handle formation, and increase when the stock starts to move higher. 

Breakout

When the stock breaks out, you should see a rush in turnover and volume should rise at least 40% above its 50-day average. 

Handle slope

The handle should slope downward along at least a portion of its price lows. An upward-sloping handle indicates weak demand

One of the recent example we can look at is $BigBear.ai Holdings(BBAI)$

We can see that there is a cup formed first but no handle, then the handle appear in mid December 2024, where the entry price of around $2.75 to $3.00 could be possible.

We also saw a rush in turnover. Volume was around 40% above its 50-day average. There was also a golden cross happening just before the handle was formed.

This might not be the best example as Big caps sometimes can break out successfully with smaller volume surges.

Summary

This is one of the indicator that I would be working on to filter out any potential breakout with the forming of cup with handle.

During downturn, do remember what guru Buffet have said, be greedy when other are fearful.

Appreciate if you could share your thoughts in the comment section whether you think cup with handle is a good way to help us find buy point.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.