Cup And Handle Patterns In Trading

Getting in too early is probably one of the most common problems I see, and it results in getting stopped out, unnecessarily, often one or two times before the actual big breakout occurs. And those losing trades can easily ruin the profitability of the strategy. Instead of using a buy stop limit order, you may also have a watch list and just enter when you see a breakout.

The cup and handle pattern is a bullish pattern followed by a breakout. Simply put, “bullish” means an investor believes a stock or the overall market will go higher. Conversely, “bearish” is the term used for investors who believe a stock will go down, or underperform. Of a downtrend or bearish target level and during a bullish trend. There is no upper limit with some patterns taking as long as a year. The handle may form over one or two weeks but may also take several months.

The following chart, courtesy of StockCharts.com, illustrates the pattern. If you have already taken a position using Strategy #1 on the pre-breakout, you can also use Strategy cup with a handle strategy #2 to add more positions on the first pullback. In both scenarios, the context is very different, but the pattern is the same, and can be traded in exactly the same way.

• For example, if a cup forms between $99 and $100, the handle should form between $100 and $99.50, ideally between $100 and $99.65.
• All of the necessary ingredients are present, including the volume spikes.
• Overall, the pattern resembles the look of a teacup with a handle and is regarded as a reliable signal to prompt bullish trades in most trading circles.
• A Pennant is basically a variant of a Flag where the area of consolidation has converging trend lines,…
• In this case, look for a strong trend heading into the cup and handle.

The sad thing is that the pattern was sound, but the profit target literally looks like you are recreating shelves in my kitchen. It just doesn’t make sense to me to set your targets this way. Rather than trying to define what a cup and handle pattern is in words, it’s best to use a picture to illustrate the pattern.

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As the name implies, it’s essentially the same, except it doesn’t have a handle. The ideal cup and handle pattern sees a pullback of about one third from recent highs. The more significant the dip, the stronger the recovery world currencies effort needs to be. The same goes for any pullback on price during the handle formation. A smaller cup and handle pattern follows with the cup completed at and the handle completed by the subsequent breakout above $4.00.

A breakout movement then occurs in the same direction as the big stock move. These are similar to flag patterns and tend to last between one and three weeks. There will be significant volume at the initial stock movement, followed by weaker volume in the pennant section, and growth in volume at the breakout.

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The cup and handle pattern has been around for over 30 years and is widely followed by many technical traders. Though limitations of the pattern are not to be ignored, the strong trends in crypto help make the cup and handle pattern effective in trading crypto markets. The result of the pattern remains the same where it is a minor breakout higher, but then prices trade sideways on declining volume to form the handle.

Once enough time has passed , the stock is free to move higher for there is now an absence of stockholders who will sell at the first good opportunity. Inverted Cup & Handle patterns usually take several months and sometimes over a year to form. The best patterns possess a decent amount of symmetry with the right half of the cup mirroring the left half and the right half of the handle mirroring the left half. But while it is nice for the pattern to have a smooth even balance, it is not absolutely necessary. Also, it is important that the handle not go below the midpoint of the cup. Theoretically, only the selling to satisfy the people who want to get out near the previous high needs to take place.

Akamai Technologies, Inc. consolidated below $62 after pulling back to major support at the 200-day exponential moving average . A Cup and Handle can be used as an entry pattern for the continuation of an established bullish trend. The cup has a soft U-shape, retraces the prior move for about ⅓ and looks like a bowl. After forming the cup, price pulls back to about ⅓ of the cups advance, forming the handle.

Place a stop-loss below the most recent low in the handle pattern. When applied to a chart, this indicator plots in the same subgraph as the price data. The maximum number of bars that the profit zone rectangle will be drawn. The number of ATRs to be used to determine the ‘height’ of the profit zone rectangle. The outline color to be used for the profit zone rectangle. The desired percentage transparency of the profit zone rectangle fill color.

Now that prices are near their old high, bullish traders stop buying and wait to see if a breakout takes place. Traders who bought near the old high are thankful and nervous at the same time. They are thankful that prices have rebounded back to the old https://shopful.us/2020/05/15/how-to-trade-with-the-inverted-hammer-candlestick/ high, but nervous about another selloff. Hence, selling the asset gradually, creating the handle (#4). A V-bottom, where the price drops and then sharply rallies may also form a cup. Some traders like these types of cups, while others avoid them.

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After the price breaks the handle downwards, we see the creation of a new bearish move. Here we are looking at the H4 chart of the GBP/USD Forex pair for May 5 – June 8, 2016. You will see the bearish Cup and Handle pattern on this chart. Notice that the pattern comes Super profitability after a bullish trend, which means it acts as a reversal. The Cup and Handle pattern is aptly named because this technical pattern actually resembles a cup with a handle on the chart. The Cup and Handle pattern is a chart figure, which has a bullish potential.

The handle will typically form a descending trendline – aim to enter when the price breaks above this descending trendline. Also watch for sharply increasing trade volume, as that indicates that the stock may be about to break out. Other characteristics of the pattern that have to do with its shape are also important.

Cup And Handle Definition

Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 60+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions Currency Risk in the media. In the diagram below, I illustrate the 2 different types of cup and handle patterns. 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.

Context: When To Trade Cup And Handles

Then, the market rallied to come within 3% of the previous high. The handle must form in less time than it takes to form the cup. On most occasions, the handle will form in about 1/5 to 1/3 of the time required to form the cup. In the end, the pattern takes the shape of a coffee cup with a handle on the right side. This trading guide explains the importance of the patterns and how you can formulate a strategic trading style to make the best out of it.

What Is A Cup And Handle Price Pattern?

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate. Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA.

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Since we’re splitting our trade into two trades, we’re going to have two protective stop loss. The initial stop loss is placed just below the round bottom. Doing this in two parts gives us additional confirmation which will be a great way to improve the performance of this strategy. Each of the two key components, the cup and the handle, triggers specific crowd behavior.

In this phase the asset’s price will often decrease by a limited amount, but no more than a third of the cup’s earlier decline. If the second decrease resembles the first set of losses this is not a cup-and-handle and may represent a long-term decline in value. As the handle forms, it is very close to the breakout happening, and this provides a good low-risk opportunity to enter the trade just before the action begins. Simply compare the day or week’s volume with the moving average line drawn across the volume bars. An Investors.com chart will also tell you in real time how volume is running in comparison with typical level at that time of the trading session. The cup and handle pattern is a common method you can use to analyse the trend of assets.

Author: Eli Blumenthal