What Is Cup And Handle Pattern

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on whatsapp

What Is Cup And Handle Pattern

trade the cup

We have seen a huge bullish rally from Rs. 165 to Rs. 1,726.45. We recommend that you combine it with other tools like Fibonacci and indicators like moving averages. Therefore, we believe that the upward trend will continue as bulls attempt to retest the previous high of $1920. When it does this, we expect that there will be an indecision between the bulls and the bears, which will push the price lower before an eventual rally. In most cases, you should ensure that the depth is about a third of the previous upward trend.

bearish direction
trading challenge

The cup part of the formation is formed by a combination of a price decrease and a price increase. This pattern can act as a reversal or continuation signal. Practice and familiarize yourself with the Cup and Handle pattern today.

Cup and Handle Chart Pattern: How to Identify and Trade it

You can also see that the two targets have been applied from the moment of the breakout. The size of the first target should be equal to the size of the handle. A bullish move begins, which moves to approximately the same level as the top of the bearish move. In most cases, the handle is locked within a small bearish channel on the chart. The pattern begins with a price decrease, during which the currency pair slowly changes its direction. When trading Forex, you need to specify the entry point, stop-loss, and take-profit before opening an order.

  • That’s a bit of an exaggeration, but I want every trader to understand how much a chart can tell you.
  • Remember that you should always use your knowledge and risk appetite to decide if you are going to trade based on ‘buy’ or ‘sell’ signals.
  • So, at this point, the shares are held by people who have a strong conviction in the stock.
  • The ‘Cup and Handle’ is a pattern which forms on the chart when a rising stock – goes through both price correction and time correction.

If it forms any lower than this, it may be a sign that the stock is not ready to break out and move higher. A cup and handle formation is considered significant when it follows an increasing price trend, ideally one that is only a few months old. The older the increase trend, the less likely it is that the cup and handle will be an accurate indicator. The trade volume should decrease along with the price during the cup and should increase rapidly near the end of the handle when the price begins to rise.

As a general rule, https://topforexnews.org/ and handle patterns are bullish price formations. The founder of the term, William O’Neil, identified four primary stages of this technical trading pattern. First, approximately one to three months before the “cup” pattern begins, a security will reach a new high in an uptrend. Second, the security will retrace, dropping no more than 50% of the previous high creating a rounding bottom. Third, the security will rebound to its previous high, but subsequently decline, forming the “handle” part of the formation. Finally, the security breaks out again, surpassing its highs that are equal to the depth of the cup’s low point.

If you set your stock scanner to meet your other trading needs, then you can flip through the results until you find a chart that looks like a cup and handle. For example, a day trader may scan for stocks with a high average true range , and a swing trader might search for stocks that have performed well in recent weeks. In addition to the price levels, some traders also look at trade volume in the asset before entering a trade after a cup and handle pattern.

Market Indexes

Sometimes the cup forms without the characteristic handle. Finally, one limitation shared across many technical patterns is that it can be unreliable in illiquid stocks. The cup and handle is considered a bullish signal, with the right-hand side of the pattern typically experiencing lower trading volume. The pattern’s formation may be as short as seven weeks or as long as 65 weeks. Pure long-term technical traders tend to follow the seven weeks or more rule.

Strong andhigh-performing growth stocksgenerally form cup and handle patterns during their bull runs. The forming of this pattern allows the stock to base or take a “breather” before its next move up and is seen as healthy action. Cup and handle patterns seen in bear markets are generally not as reliable.


This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealeror an investment adviser. And you gotta check out our brand-new Breaking News chat feature. See how two skilled stock market pros can help you find the news with the most potential to move stocks. Here’s where you can learn more and start a 14-day trial TODAY. Less of a price drop from the high is a signal of strength and shows more potential of an upcoming uptrend.

It all depends with the price move before the formation of the pattern. Patterns with shorter handles have a higher success rate than patterns with longer handles. For a more in-depth read about double tops and double bottoms, check out our article on divergence trading strategies. A pullback refers to the falling back of a price of a stock or commodity from its recent pricing peak. DOWN order when the price retests the previously broken support of the pattern .

The perfect pattern would have equal highs on both sides of the cup, but this is not always the case. If the stop-loss is below the halfway point of the cup, avoid the trade. Ideally, it should be in the upper third of the cup pattern.

This is one of the skills that any professional https://en.forexbrokerslist.site/r has. For Binary Options trading, you need an absolutely accurate transaction to make a profit. The retest point of the pattern is eligible for you to enter a trade. The cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over 1-4 weeks. When you are trading the inverse Cup and Handle pattern, you should place your stop loss order above the highest point of the handle.

This rally failed to reach the measured move target at 50, calculated by adding the four-point depth of the cup to the resistance line near $46. When it comes to taking profits, traders can use the greater pattern to inform exit positions. Often, this is simply a mirror of the distance between the low point of the cup to the breakout level. For instance, if a stock trades for $25 at the bottom of a cup and the handle breakout occurs at $35, traders should set a price target of $45. It’s smart to also establish stop-loss buffers within a tolerance that suits your risk level. Volume should decrease during the formation of the pattern, but there should be a spike when the breakout/breakdown happens after the handle formation.

Understanding the structure of the Cup and Handle pattern and the inverse

Patterns help us recognize possible upcoming movements so that we can create trading plans to catch moves that fit our strategies. This is used in conjunction with the Stocks Over Coffee Podcast on Technical Education Cup with Handles. Apple is the largest company in the world with a market cap of 2 trillion. This is no easy feat to accomplish but is there a way to get into a small company before it becomes a household name? Looking to see this one play out over a 7 day time frame.

chart pattern

The cup is formed as the price consolidates in a small range following a sharp decline. This consolidation forms the “handle,” which is typically a shorter-term downtrend. Investors typically trade an inverse cup and handle by selling when the price breaks below the handle. A dull market is a market where there is little activity. A dull market consists of low trading volumes and tight daily trading ranges.

As the name suggests, the pattern is made up of two sections; a cup and handle. The cup pattern happens first and then a handle happens next. The cup on inverted cup and handle patterns form an upside down U.

The fihttps://forex-trend.net/t place to take your profit has been marked as Target 1. The pattern is confirmed at the position pointed by a green arrow marked as Confirmation. It should also be applied right from the point of momentum breakout.

What Does a Cup and Handle Pattern Tell You?

We all know that there is no surety that the stock will reach the price targets we have determined and hence it is important to place a stop loss. You can place a stop loss near the price where the handle was formed. Here you need to add the height of the cup and add it above the resistance level. In this case, the height of the cup is Rs. 15 (Rs. 60 – Rs. 45). Once the bottom of the cup is established, the stock starts climbing higher which forms the right side of the cup . This up move is a sign that big investors are buying the stock which increases demand and the stock price goes up.

On the price chart, you should take careful observation to recognize it. The cup of the pattern is a long-lasting price accumulation and recovery period. You need to have an overview through multiple time frames to be able to recognize this classic price pattern.

O’Neil included time frame measurements for each component, as well as a detailed description of the rounded lows that give the pattern its unique teacup appearance. After the high forms on the right side of the cup, there is a pullback that forms the handle. The handle is the consolidation before breakout and can retrace up to 1/3 of the cup’s advance, but usually not more. For instance, you can place a stop buy order just above the upper trend line of the handle to capitalize as soon as the price breakout begins. A strategy in more uncertain patterns is to place a limit order just below the pattern’s breakout level, which can trigger execution in the event of retracement. Always test the strategies you’re going to trade before you put any real money on the line.

Mohanasree Ramachandran

Mohanasree Ramachandran

Interior designer, Stylist & Lecturer.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top