Page 187 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes
Figure 6.7

2. Cup and Handle: A cup and handle chart is a bullish continuation pattern in which the
upward trend has paused but will continue in an upward direction once the pattern is
confirmed.
As you can see from the below, this price pattern forms what looks like a cup, which is
preceded by an upward trend. The handle follows the cup formation and is formed by a
generally downward/sideways movement in the security's price. Once the price movement
pushes above the resistance lines formed in the handle, the upward trend can continue.
There is a wide-ranging time frame for this type of pattern, with the span ranging from
several months to more than a year.
Figure 6.8

3. Double Tops and Bottoms: This chart pattern is another well-known pattern that signals a
trend reversal - it is considered to be one of the most reliable and is commonly used. These
patterns are formed after a sustained trend and signal to chartists that the trend is about to
reverse. The pattern is created when a price movement tests support or resistance levels
twice and is unable to break through. This pattern is often used to signal intermediate and
long-term trend reversals.

182 LOVELY PROFESSIONAL UNIVERSITY