Technical Analysis Plain and Simple: Charting the Markets in Your Language, Second Edition

Rules of the Game

Besides those mentioned previously, there are several other rules to apply to the pattern. First, the shape and depth of the cup are important. The depth of the cup should be in proportion to the width. Again, technical analysis embraces relative changes in the market, so be sure your assumptions make sense. There may be specific levels that many market experts use, but general levels suffice here. The depth of the cup should be 20–30% of the peak price because more shallow cups do not give the weak bulls enough incentive to get out. Deeper cups can require the stock to double in price before the buy signal is even completed.

The shape and depth of the cup are important.

Cups should not be too sharp either. The “v–shaped” ...