The handle is characterized by a downward sloping price action, typically with lower volume, which retraces a portion of the cup’s advance. The cup-and-handle pattern, a powerful price pattern in technical analysis, can help you to make more informed trading decisions. By understanding the ins and outs of the cup-and-handle pattern, traders can navigate with confidence and precision, maximizing their chances of success. After the cup forms, a short pullback ensues to carve out a handle chart pattern. The handle pattern forms near prior resistance levels – signaling a market hesitation. But once prices firmly break above the rim line formed by the prior cup highs, new highs emerge propelling the stock upwards.

The double bottom is a bullish pattern that signals when a trend may change from down to up. The cup and handle pattern is a bullish chart pattern that indicates a continuation of the existing uptrend. It is called “cup and handle” due to its structure, which consists of a “U”-shaped bottom (cup) and a consolidation that slopes to the downside (forming a handle). To set a price target for a cup and handle, traders can measure the depth of the cup from its high point to its low point. For example, if the cup has a depth of $10, then the price target should be set at $10 above the breakout level.

How to Trade a Cup and Handle’s 95% Reliability & 54% Profit

A good entry would be when the price breaks above the top of the descending trendline. If you’re going to use this pattern in your trading strategy, you’ll have to accept the discrepancies. The handle isn’t as pronounced as the first two, but it’s there.

Information regarding past performance is not a reliable indicator of future performance. Remember, there are a lot of traders who focus on technical patterns. The more you know about how they think, the smarter you can start to trade. The easiest way to describe it is that it looks like a teacup turned upside down.

Disadvantages of Trading on the Cup and Handle Pattern

Then, the price broke above handle resistance the misbehavior of markets and eventually continued higher. If the handle retraces and closes below the 50% retracement level of the previous uptrend’s length, it may suggest a weakened pattern and the possibility of a trend reversal. The content provided in these blog posts is for informational purposes only and should not be considered as financial advice.

• As the price starts to rise again, heading toward the previous high, the volume may gradually increase, but it often remains below the levels seen during the initial decline.
• The depth of the cup may vary, but it is generally recommended to be between one-third and two-thirds of the previous uptrend.
• The first step to finding stocks that have profitable chart patterns is to select a set of criteria.
• A trailing stop is an order that adjusts automatically as the price moves in the trader’s favor.

Please be aware that the following disclaimer pertains to Meta Trading Club Inc. Any investment decisions made based on the information available on this platform are undertaken at your own risk. It is advisable to seek the counsel of a licensed financial advisor or professional before making any investment decisions. While the cup and handle pattern is effective, no pattern is foolproof.

Let’s get into the cup and handle pattern as defined by William O’Neil. Plan re-entry points in case early price breaks fail because this could set up a second-chance add-on trade if prices break the upper rim line again with force. When evaluating any chart pattern, smart traders rely on statistics – not hunches. Not only does this data confirm the potency of proper cup and handle chart alignments – it also shows how rapidly profits can accrue once the buy trigger flashes. Let’s dive into all things cup with handle patterns so you can start trading them with confidence.

Order execution should only occur if the price breaks the pattern’s resistance. Traders may experience excess slippage and enter a false breakout using an aggressive entry. In this section, we will explore the entry and exit strategies, as well as the risk management techniques that can enhance your trading experience. After this reverse cup and handle forms, prices pullback to carve out a small reverse cup and handle formation just under prior support levels. This pause sets up the sell trigger – which flashes once prices break below the support line formed by the prior cup lows. Instead of a rounded bottom bracketed by lows, the inverted cup and handle pattern traces out a rounded peak bracketed by nearly equal highs.

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The reverse cup and handle pattern, also known as the inverted cup and handle, is the bearish counterpart to the traditional cup and handle pattern. While the traditional pattern features a “U” shape signaling a bullish continuation, the reverse pattern forms an inverted “U” shape, often resembling a double top pattern. This inverted cup suggests a bearish reversal, with the handle forming a bearish flag or bear pennant, indicating further downward momentum.

Pitfalls to watch out for when trading the cup and handle pattern

The formation period for the pattern typically ranges from a few weeks to several months. The ‘cup’ usually takes longer to develop, while the ‘handle’ is a shorter consolidation phase. A U-bottom pattern is characterised by a slow, gradual decline in prices followed by stabilisation, allowing for a psychological shift among traders. This leads to exhausted selling pressure and a steady recovery, indicating stable, sustained upward trends. Allow the price to reach the 50%-61.8% retracement level and consolidate for a period. Avoid entering the trade immediately as the price touches the Fibonacci levels.

AxiTrader is not a financial adviser and all services are provided on an execution only basis. Information is of a general nature only and does not consider your financial objectives, needs or personal circumstances. Important legal documents in relation to our products and services are available on our website. You should read and understand these documents before applying for any AxiTrader products or services and obtain independent professional advice as necessary. Crucially, risk management dictates placing a stop-loss order below the handle’s low. Every chart you review in TradingView will automatically be scanned for a cup and handle pattern, and you can run backtests on the pattern.

But merely identifying the cup and handle chart pattern is not enough to profit. Rather, you must also know exactly when to buy for ideal, low-risk entry points. Historically, the cup and handle pattern has shown a high success rate, making it an attractive tool for traders. This pattern has been observed in various financial markets, including stocks, commodities, and currencies, and has consistently demonstrated its reliability. Chart patterns are visual representations of price how to avoid slippage in forex action on a trading chart. They are formed by the movements of an asset’s price over time and can take various shapes and forms.

Secondly, you will see two declining trendlines forming the “handle.” The handle should be less steep than the cup and last at least five days. The cup and handle chart pattern is considered reliable based on 900+ trades, with a 95% success rate in bull markets. An inverse cup and handle pattern forms with the bottom of the cup being at the top of the stock’s price movement. The handle forms as a subsequent, smaller upward movement at the top of the cup (near the bottom of the chart pattern).

Crypto Picks & Analysis

Because, in such cases, the stock (or whatever financial instrument) might struggle to reach there. This Pullback Entry technique provides a more confirmed trade entry, hence it gives you more confidence as well. Buy the stock at the moment when a candle or two close above the new Support level. The price breaks out through the Resistance Line of the Handle but doesn’t close above the Key Resistance of the Saucer Formation.

As the handle completes, prices would rally again to retest the handle and cup resistance. A successful breakout typically includes increased volume as buyers arrive in large numbers. Sometimes, after a breakout, the price may linger near the breakout point or circle back to retest the point of breakout. The target price for a cup and handle pattern is a measured move of the distance of the cup applied to the breakout of the handle pattern. First, you will notice a “cup” shape in the chart that forms when an asset’s price rises, then retraces in a long U-shape that forms over at least 30 trading days.

• These patterns provide valuable insights into market trends and can help traders make informed decisions.
• ” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006.
• Named for its distinctive shape, the cup and handle pattern is a powerful, bullish signal that can indicate a stock or crypto is likely to see a price increase in the future.
• The bottom of the cup is a stabilizing period where the price moves sideways.

Is a Cup and Handle Pattern Bullish?

Trading cup and handle boils down to reacting quickly once the pattern is confirmed while enforcing smart entry, stop, and target protocols. Either way, once a valid breakout sticks, post-cup upside momentum kicks in which offers swing traders sizable profit potential if they act quickly while managing risk. You may also come across what’s known as an inverted cup and handle or reverse cup and handle pattern. As the names suggest, this is simply an upside down cup and handle version of the classic formation. Calculating the target price for your trade involves measuring the depth of the cup and projecting that distance upwards from the breakout point. This gives you an estimate of how far the price might rise after the breakout.

Interestingly, this chart shows both successful and failed patterns. The stock was featured on my Top Penny Stocks to Watch for July 2020 list. It’s not textbook cup and handle, but the pattern is still obvious. First, many online sources give precise definitions forex etoro review of the cup and handle. “For it to be a cup and handle, the stock has to do this, then this.” Blah, blah, blah.