The cup and handle pattern is a bullish continuation pattern that consists of two parts, the cup and the handle. The cup typically takes shape as a pull back and subsequent rise, with the candlesticks in the center of the cup giving it the form of a rounded bottom. The handle is made up of downward-sloping price action that soon breaks out above the upper resistance line to indicate the continuation of the original bullish trend. No technical pattern works all the time, which is why a stop-loss is used to control the risk on trades that are less efficient.

• The buy point occurs when the stock breaks out or moves upward through the old point of resistance .
• There are several ways to approach trading the cup and handle, but the most basic is to look for entering a long position.
• It then finds some support and moves upwards again and finds resistance around the 50% retracement.
• Other technical analysis tools include indicators, chart patterns, and volume.
• However, some traders make the mistake of assuming that once a U-shape forms, the price will drop to form a handle.
• The implication is that the downward trend from the previous move has ended and that prices will resume their uptrend.

But, ultimately, if the price breaks above the handle, it signals an upside move. If a cup and handle forms and it is confirmed, the price should see a sharp increase in the short- to medium-term.

What is Cup and Handle?

Chart patterns can be described as a natural phenomenon of fluctuations in the price of a… That’s why in this trading strategy guide, I want to dive deep into the Cup and Handle pattern so you, yourself, can find your own “monster” breakout trades. The price of an asset stays at its lowest point for a period of time forming the base of the cup. Price makes a straight or nearly straight down move before reversing and heading up. After reaching the bottom of the cup, the price begins to rise again in order to make a handle. Also, when the stock is breaking out, you should generally see a rush in turnover. Volume should ideally rise at least 40% above its 50-day average.

• This consolidation forms the “handle,” which is typically a shorter-term downtrend.
• If the stop-loss is below the halfway point of the cup, avoid the trade.
• In a bear market, there is no such prior uptrend to provide a foundation for the pattern.
• You need to know if that cup with handle is as it should be, or if it has flaws.
• Look for cups with a bottom roughly in line with the price area where the cup began to form.
• Sharp gains on the right side aren’t necessarily good, either.
• A breakout is when the stock price pushes above the resistance level created by the highs of the handle.

There are times when the market is extremely bullish and the handle pushes slightly above the old high but remains within 10% of it. The Cup and Handle Pattern cannot exist without a prior uptrend. As a result, the pattern is found frequently within the crypto 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.

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Since the handle must occur within the upper half of the cup, a properly placed stop-loss should not end up in the lower half of the cup formation. The stop-loss should be above $49.75 because that is the halfway point of the cup. Cup and handle patterns that form at the end of a trend should be avoided because the trend is likely to continue. Learn about the cup and handle, how to trade it, and what to watch for to improve the odds of a profitable trade. The subsequent decline ended within two points of theinitial public offering price, far exceeding O’Neil’s requirement for a shallow cup high in the prior trend.

You could wait for the price to break above the handle to signal that the uptrend is continuing. The cup and handle indicator is a technical pattern found on crypto price charts. It indicates the correction of a previous uptrend and eventually signals its resumption. The pattern exhibits clearly defined entry and risk levels but can be difficult to interpret in crypto markets due to fragmented volume metrics. Other technical analysis tools include indicators, chart patterns, and volume. Each of these can be used to help traders make better investment decisions.

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The subsequent recovery wave reached the prior high in 2011, nearly 10 years after the first print. Technical traders using this indicator should place a stop buy order slightly above the upper trendline of the handle part of the pattern. The price should break out above the top of the handle and continue on to its target price. Make sure you also don’t miss our amazing Triple Top Chart Pattern Trading Strategy which is the ultimate reversal trading strategy that you can have in your trading arsenal. Use the same rules – but in reverse – for a SELL trade, but this time we’re going to use the inverted Cup and Handle pattern. In the figure below, you can see an actual SELL trade example. The next logical thing we need to establish for the Cup and Handle trading strategy is where to take profits.

The stock needs to show a 30% uptrend from any price point, but it must be before the base’s construction. Or, the stock must show a minimum https://www.bigshotrading.info/ 20% increase from a prior breakout. The buy point occurs when the stock breaks out or moves upward through the old point of resistance .

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In most cases, the handle should not dip below the top third of the cup for it to be a cup and handle pattern. The entry point for a cup and handle pattern is to buy when the price moves above the handle formation. This is made simpler by using a drawing tool and waiting for the price to move up and out of the drawn handle 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. This could attract traders to open a position at the price rise, or at least avoid opening a short position against it.