Cup And Handle Patterns

Now, let us briefly discuss how you can integrate each of these three tools within your strategy to trade the Cup and Handle Pattern, and improve the accuracy of your trading decisions. In the construction of a Cup and Handle Pattern, the time that it takes for the pattern’s base to form can be very variable. Depending on the timeframe that you are trading in, the construction of the pattern’s base can take anywhere between several hours to several months to complete. The more “U” shaped the cup bottom is, the stronger the signal. A secondary correction occurs, with price falling +/- 50% from the peak at .

The stock then pulls back for several weeks or longer, but retains at least half of the prior uptrend’s gains. The 1975 to 1978 cup and handle pattern was so strong that Gold exploded higher before forming any handle. Carolyn Huntington is an economist, professional trader, and analyst. She made her first big deal in her student years with a profitable investment in Facebook stock. Over the years of trading, Carolyn has developed its own strategy that allows even those who have never traded on the stock exchange before to earn money.

cup and handle chart

Commentary and opinions expressed are those of the author/speaker and not necessarily those of Mint Global. Mint Global does not guarantee the accuracy of, or endorse, the statements of any third party, including guest speakers or authors cup and handle chart pattern of commentary or news articles. All information regarding the likelihood of potential future investment outcomes are hypothetical. This shape can develop both in the short and long-term, ranging just from a few hours to a year.

Price Projection

All investing involves risk, including loss of principal invested. Past performance of a security or strategy does not guarantee future results or success. The best chance to buy those stocks at a low price could be over the weeks ahead.

  • The Cup with Handle confirmation comes when the price breaks out of the handle.
  • To conclude, the Cup and Handle is a popular chart pattern that is heavily used by technical traders as an indicator of future price trends.
  • What if I told you that taking the depth of the cup and adding it to the breakout value is the wrong way to set your price target.
  • Depending on the market psychology they represent, the candlestick patterns are classified into two broad categories – the Reversal Candlestick Patterns and the Continuation Candlestick Patterns.

First, the downturn indicates investors moving off of a stock that had been growing, often for fear of an overvalued asset or to book gains. Handles are relevant to all financial markets, but mean different things depending on the asset. Target 2 – equals the vertical size of the cup applied at the moment of the breakout through the handle.

How To Enter And Exit This Powerful Pattern

Firstly we want the stock to have attained a strong relative strength when compared to all other stocks, so we require an RS of 70 on a scale from 1-99. We also want the pivot to be approaching the left cup level, so we require the pivot Super profitability price to be at least 60% of the left cup. Thirdly, there must have been sufficient time for a shakeout of holders during stage 2, and sufficient time for institutions to notice and take an interest in the stock during stage 3.

cup and handle chart

The confirmation signal of the figure comes at the moment when the price action breaks the handle downwards. After the bearish Cup with Handle signal, you can start pursuing the bearish potential of the pattern. The confirmation of the pattern comes when the price action breaks the channel of the handle in the bearish direction.

Interpreting Cup And Handle Pattern

For instance, the cup should be round rather V-shaped, as the former indicates consolidation whereas the latter is too sharp of a reversal from the high. The cup also should be relatively shallow – it should retrace only one-third to one-half of the prior uptrend. The handle can vary more in shape, but the downtrend should not retrace more than one-third of the gains at the end of the cup. In addition, a shorter and less severe downtrend during the handle is a good indicator that the breakout will be extremely bullish.

cup and handle chart

Therefore, such Cup and Handle Patterns, where the cup of the pattern takes a V-shape are best to avoid as the trading signals generated by them are not very reliable. Similar to the Regular Cup and Handle Pattern, the market forces leading to the development of this pattern are different in an uptrend versus a downtrend. However, this has no implication on the directional prediction of future price action that the Inverted Cup and Handle Pattern indicates and the strategies that you can implement to trade this pattern. Overall, in most technical and pattern trading circles, the pattern is well regarded as a reliable sign of upcoming bearish price action. The Handle is a trading range or a consolidation area that develops after the Cup is completed.

In our premium service, we continue to identify and accumulate those quality companies with considerable upside potential over the next 12 to 24 months. The true Cup doesn’t usually have a very high trade volume at its bottom. If it’s not particularly smaller compared to what it was before the pattern, then you might want to be skeptical. If the pattern is correct after all, you’ll earn profits – if not, you’ll still have stop-loss. Anyway, the Handle isn’t supposed to last for too long – not longer than the Cup’s own length, at least.

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? Feature Discussion Rounded turn Look for a smooth, rounded curve , but allow exceptions. Cup rims The two cup rims should reach the bottom at close to the same price. The cup’s recoil handle should not rise above the top of the cup, but often tracks 30% to 60% above…

Cup With Handle Signal

A Cup and Handle pattern is a bullish continuation pattern that resembles a teacup on a candle chart. The cup part of the pattern is where the price gradually changes its direction from bearish to bullish, intuitively speaking, the investors are gaining hope in the performance of the security. The handle part is when the price pullback slightly before roars higher and continues the previous trend. The Cup and Handle pattern can take between 30 to 50 candles to form on any given time resolution. 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.

Set the stop loss just below the lowest point on the handle, but no lower than half the depth of the cup since the handle should remain above this level. Ideally, the stop loss should be within the upper third of the cup since strong handles will not drop below this point. For traders scanning for a stock on the verge of a breakout, one of the signs to find is a classic cup and handle pattern.

Drawing The Cup And Handle

To learn the stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service. A correction and consolidation are usually needed to facilitate an explosive breakout . As we noted a few weeks ago, the move towards a breakout is probably 6 to forex trading 12 months away. Gold’s corrective low in price in 2004 was 1% below its 300-day moving average and nearly 3% above the 38% retracement from the 2001 low. The 300-day moving average is currently at $1745, which is roughly 3% higher than $1690, the 38% retracement from the 2016 low.

Plan Your Trading

As mentioned, we may see triangles, or we may also see trading ranges or channels. Below is an example of a EUR/USD cup and handle daily chart, where the handle represents a channel or trading range angled down. The pattern is partially defined by this final return to growth.

Accordingly, the overall supply is able to rise and people eventually buy the stock en masse. Under ideal circumstances, the stabilization phase is necessary, although it shouldn’t go on for too long – the price is supposed to start climbing soon. But importantly, it also shouldn’t have a sharp V-shape where the bottom pretty much doesn’t exist. I created this website to share what I learned about trading and investments the hard way, and hopefully provide you with a headstart in your journey to become a successful trader/investor. Navdeep has been an avid trader/investor for the last 10 years and loves to share what he has learned about trading and investments here on TradeVeda.

Author: Richard Best

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