New Ways To Trade The Cup And Handle Pattern

We research technical analysis patterns so you know exactly what works well for your favorite markets. This can be the same when reading the price action for the Cup and Handle formation. At TSG, we believe the Cup and Handle is one of the most authentic continuation patterns. Unlike the bullish flag pattern, which is a continuation pattern, the Cup and Handle pattern takes a lot of time to develop.

It then moves downwards and forms an inverse of a cup, rises slightly and then continues falling. The technical target for a cup with handle pattern is derived by adding the height of the “cup” portion of the pattern to the eventual breakout from the “handle” portion of the pattern. The optimum size of the handle is considered when it is 5-15% below the full length of the right part of the cup. Fiduciary As can be seen in the picture above, the handle is the correction of the price to the right side of the cup. As a rule, such a correction takes the form of a flag pattern.

Cup With Handle Signal

Therefore, arriving at an accurate volume figure is extremely difficult. At that point, the cup of the pattern was completed and the handle was about to begin. The pricing of the handle remained within the upper portion of the cup, so all of the necessary ingredients were present for a bullish breakout. The cup and handle pattern starts with an uptrend, followed by a 30–50% correction. Use the Fibonacci retracement tool to measure out the previous uptrend, then look for the correction to retrace near the 30–50% zone.

• One prominent chart pattern that traders use is the Cup and Handle Pattern.
• The figure on the right shows an example of a cup with handle chart pattern.
• Because of this, the pattern is often used to spot opportunities for going long in the market.
• These investors may have been waiting as long at 12 weeks for an opportunity to sell their positions without incurring a loss and they are not dissuaded by all of the new found bullish talk.

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. A cup and handle is a technical indicator where the price movement of a security resembles a “cup” followed by a downward trending price pattern. This drop, or “handle” is meant to signal a buying opportunity to go long on a security. When this part of the price formation is over, the security may reverse course and reach new highs. Typically, cup and handle patterns fall between seven weeks to over a year. Place a stop buy order slightly above the upper trend line of the handle.

How To Trade The Cup

When the forex markets are not open, the pair tends to be quieter, which means less movement, and it also means that intraday cup and handle patterns will not form as strongly. This is because there is not Exchange rate sufficient momentum to fuel a breakout and bullish trend. The cup should be more U-shaped than V-shaped, as a gentle pullback from the high is more indicative of consolidation than a sharp reversal.

The buy point occurs when the stock breaks out or moves upward through the old point of resistance . Fibonacci clusters are areas of potential support and resistance based on multiple Fibonacci retracements or cup and handle chart pattern extensions converging on one price. A breakout trader looks for levels that a security hasn’t been able to move beyond, and waits for it to move beyond those levels, as it could keep moving in that direction.

Drawing The Cup And Handle

From a technical perspective, this is a very important part of the pattern. At this point more positive fundamental news is released and the stock price rallies. With selling pressures satiated and the flow of fundamental news decidedly bullish volume increases dramatically and the stock works toward a fresh new high. The next session Wall Street analysts make positive comments and the stock surges to a new high on dramatically increased volume.

With RSI rounding down, on short term, seems like possible downside, with higher chances of trend resuming to upside and go beyond current 52-week highs! If the trend is up, and the cup and handle forms in the middle of that trend, the buy signal has the added benefit of the overall trend. In this case, look for a strong trend heading into the cup and handle. For additional confirmation, look for the bottom of the cup to align with a longer-term support level, such as a rising ​trendline or moving average.

Chart Example Of The Inverted Cup And Handle

For example, if the cup forms between a price range of $1.0 to $2.0, then the handle needs to form within $1.50 to $2.0. If the handle pushes too low, then it will be ineffective at trapping short sellers. The cup and handle pattern cannot exist without a prior uptrend.

The pattern is completed when the price action breaks the resistance level formed by the peaks that form the rim of the Cup. In cup and handles, as with other breakout setups, the price might make several false breaks and possibly reverse for a while. If the stops are too close, the trade can close on a loss, even if the breakout eventually goes in the right direction. The buy point is a momentum short signal as the stock makes a new low outside the bottom of the inverted cup.

Below is another chart, a cup and handle example for Ethereum. After rallying 25%, the market corrected lower approximately 50% on increasing bearish volume. Then, the market rallied to come within 3% of the previous high. If the breakout is successful, then you can consider moving your stop loss to the breakeven level, locking in the trade without experiencing a loss. The cup and handle pattern is an effective combination to flush out weak holders. The first four components help shape the structure for the pattern’s name because they form the outline of a cup with a handle.

This may be a bullish flag or pennant pattern, or a short pullback. Ideally, the handle should retrace no more than 1/3 into the cup’s depth. The shorter the retracement in terms of both time and distance, the more bullish the pattern.

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The Regular Cup and Handle Pattern is what we commonly refer to as simply the Cup and Handle Pattern. In technical analysis, the appearance of the Cup and Handle Pattern is considered a “bullish signal”. Because of this, the pattern is often used to spot opportunities for going long in the market. The cup and handle pattern is a common method you can use to analyse the trend of assets. You can use it to analyse stocks, currencies, bonds, commodities, and index funds among others.

Buyers are taking a wait and see approach, but there is not enough selling volume to push the price to a deeper correction. Day trading is subject to significant risks and is not suitable for all investors. Any active trading strategy will result in higher trading costs than a strategy that involves fewer transactions.

Then the price action begins to create the handle, which is a bearish channel type structure. In the above chart example, you can see how the stock made a nice round cup and Finance had a strong handle, before continuing higher. The one thing to point out is that on the breakout, the stock used a lot of gas just to work its way through the cloud.

The pattern has better odds of playing out as expected if it belongs to a lagging stock in the market with declining sales and earnings growth. The chart then swings down in price as stop losses and trailing stop signals are triggered for exits. Second buy entry on the breakout of the initial peak from where we started drawing the cup.

However, a share price declines it can mean many things, not just the formation of a handle. There’s no good way to distinguish falling asset prices from the first stage of a stock which will make an eventual rally. Lucky investors who get in at the bottom of the cup will, to be sure, make more than those who invest during the handle, but just as often they may predict recoveries that never come. Whenever you are looking at chart patterns and setups, try to think of things creatively.

Basic Characteristics Of The Cup With Handle

The image shows a bullish Cup with Handle chart figure with the blue lines on the chart. The decrease could stop a bit before the midpoint, or could go a bit below. The last time I checked, simply drawing a line up in the air means absolutely squat. The candles of the handle should have small bodies and in a very tight range.

Author: Dan Blystone