Cup and Handle pattern in Century Textiles suggests buying opportunity

Buy Century Textiles & Industries around Rs 348 with a stop loss of Rs 320 for higher targets of Rs 400.

What is Cup & Handle Pattern?

The Cup & Handle chart pattern is popular and easy to spot pattern. The Cup & Handle pattern is believed to be one of the most reliable & popular patterns among traders community. In technical analysis, a Cup & Handle pattern describes a specific chart formation that projects a bearish-to-bullish trend reversal.

A Cup & Handle reversal pattern forms after a down trend, and its completion marks a trend reversal to up trend. C & H patterns are an integral part of technical analysis, but successful traders combine these techniques with technical indicators and other forms of technical analysis to maximize their odds of success. In the standard Cup & Handle pattern, we connect the high after Cup with the high created after the handle. A trend line is drawn by connecting these highest points of the two peaks, which is called as "Neckline". This trend line is the most important component of C & H pattern.

Century Textiles is having a strong resistance line standing around Rs 330 levels indicating strong bullish breakout only above these levels. Recent formation of Cup and Handle pattern has given a breakout on a close above Rs 330 mark which suggests buying in the stock for higher targets of Rs 400. Volume can also add further insight while trading these patterns. Decent volume participation while giving breakout is also giving support to C & H pattern.

Figure.1. Cup & Handle pattern and Buy signal on Century Textiles

Buy Signal

1. A close above neckline (Rs 330) of Cup & Handle pattern is indicating trend reversal to uptrend.
2. Short-term moving average 20 DMA (Rs 320) defines short-term trend is providing support to buyers as prices are sustained and trading around it.
3. Mid-term moving average 50 DMA (Rs 305) defines mid-term trend is very well augur with bulls as prices are sustained and trading above it.

4. Decent volume participation while pattern breakout will also give additional confirmation.

Profit Booking

Target as per Cup & Handle pattern is calculated by adding height of Cup to neckline which comes to Rs 420, however one can book profits near previous swing high which is around Rs 400.

Stop Loss

Entire bullish view negates on breaching of Handle on closing basis and one should exit from long position. In case of Century Textiles, it is placed around Rs 320 levels.

Conclusion

We recommend buying Century Textiles & Industries around Rs 348 with a stop loss of Rs 320 for higher targets of Rs 400 as indicated in above chart.

Disclaimer:

SD Solutions advises users to check with certified experts before taking any investment decisions.

Sources - moneycontrol.com, Narnolia Financial Advisors Ltd

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