Contents
Once this price rise reaches more or less the place where the initial drop started, the growth ends and gets replaced by a timid bearish shift – the Handle part. When trading this pattern, it is essential that you allow for the Cup and Handle Pattern’s construction to complete before trying to make any trades using it. If you do not do this, you stand the risk of having made Margin trading an inaccurate call that could cost you a lot of money when the trade goes against you. When making trading decisions based on this pattern, it is important that you factor these strengths and weaknesses in your decision making. Therefore, in the following section, we will cover some of the most critical advantages and limitations of trading with the Cup and Handle Pattern.
One hundred percent of the extension is considered a conservative price target for cup and handle pattern breakouts, while 162 percent is considered an aggressive price target. A V-shape Cup implies the price is rebounding, Forex dealer but the reversal is too sharp and does not indicate any near term stability. In such situations, it is often too difficult to trade or make any near term predictions on the price performance of the assets.
The target can be estimated using the technique of measuring the distance from the right peak of the cup to the bottom of the cup and extending it in the direction of the breakout. A common stop level is just outside the handle on the opposite side of the breakout. The Inverted Cup and Handle is the bearish version that can form after a downtrend. TradingView has a smart drawing tool that allows users to visually identify this pattern on a chart. A profit target is determined by measuring the distance between the bottom of the cup and the pattern’s breakout level, and extending that distance upward from the breakout.
Crucial time for the market, and you gotta admit this price action looks bullish af. Bull scenario looking more probable than not to me. if i were a betting man… The unique three river is a candlestick pattern composed of three specific candles, and it may lead to a bullish reversal or a bearish continuation. Technical traders using this indicator should place a stop buy order slightly above the upper trendline of the handle part of the pattern.
Structure Of The Cup And Handle Technical Pattern
Until then, you can never be sure that the chart pattern that you are looking at will materialize into a Cup and Handle Pattern, and thus the accuracy of your trades can be relatively low. Due to these above-stated limitations, the trading decisions that are made solely using the Cup and Handle Pattern are not always accurate. Contrarily, a shorter Handle with a smaller slope is a good indicator that the price will revert, and the breakout will be very bullish.
Price fluctuates in a narrow band with no clear trend.Triangles & WedgesTriangles and wedges can be powerful continuation or reversal patterns, depending on their shape. 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. When the pattern is complete, a long trade could be taken when the price breaks above the handle. However, some traders make the mistake of assuming that once a U-shape forms, the price will drop to form a handle. It may not, so you should ideally avoid trading the pattern until it has fully formed, in order to confirm the trend.
- The cup and handle is considered a bullish signal, with the right-hand side of the pattern typically experiencing lower trading volume.
- It is recommended to read the relationship agreement before using the training program.
- A correction and consolidation are usually needed to facilitate an explosive breakout .
- From this point forward, the bias begins to tilt gradually higher.
The cup and handle pattern is a bullish continuation pattern triggered by consolidation after a strong upward trend. The pattern takes some time to develop, but is relatively straightforward to recognize and trade on once it forms. As with all chart patterns, trading volume and additional indicators should be used to confirm a breakout and continuation of the original bullish price movement.
Check Our Daily Updated Short List
The handle should form in the top half of the cup pattern, with volume contracting as the trough forms and then expanding on the breakout. The cup and handle forms as an intermediate/secondary cycle correction before the primary cycle resumes its up-trend. Finally, you can use a buy-stop trade to take advantage of a bullish trend. This is a situation where you place a buy-stop order above the resistance. In this case, a bullish trade will be opened after the price rises above the resistance level. The cup and handle pattern is part of the so-called continuation patterns.
Other such patterns are the ascending and descending triangle pattern and bullish and bearish flags and pennants. 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.
The Head And Shoulders Pattern: How To Trade Tops And Bottoms
Any active trading strategy will result in higher trading costs than a strategy that involves fewer transactions. Although larger profits could be realized by entering at the base of the cup, this decision cannot be made based on the identification of the cup and handle pattern since it will not yet be evident. Another breakout succeeds, and the stock’s new high will be set at approximately the former high plus the depth of the cup relative to that point. Also, the measured upside target from the current cup and handle pattern is as high as $3,100 and the analog projects to $3,000 in 2 years. That was also the case with the 1996 to 2004 cup, though that pattern was not quite a continuation pattern. The current cup and handle pattern is stronger than usual due to the cup’s right side exceeding the left side .
Traders may experience excess slippage and enter a false breakout using an aggressive entry. There is a risk of missing the trade if the price continues to advance and does not pull back. Overall, cup and handle chart pattern Patterns are useful and effective in identifying reliable bullish trades when traded using proven trading strategies. However, just as with any other chart pattern, do not make a trading decision that is solely based on this pattern. Combine your use of the Cup and Handle Pattern with trading signals from other complementary tools in technical analysis for making your trade decisions even more reliable.
Well guess what folks, sometimes it’s not always sunny outside. 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. Any who, as the price approaches the creek or top of resistance, the stock will have a minor pullback, thus creating the handle. Once this pullback or handle is complete, we are off to the races. 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.
The Handle
This is because the Cup of the pattern can take several different shapes depending on the relative duration over which it is formed. Together, these three price movements stated above – the downward slope in price, followed by a flat price range, which in turn is followed by an uptrend – completes the “Cup” part of the pattern. 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.
Cup
If the volume does not increase, the probability of a false break out increases. Fortunately, the price should not move into the lower 1/3 of the cup, which makes it a good level to place a protective stop. There are several benefits of using the cup and handle pattern. First, it is a relatively easy pattern to identify in a chart. Second, you don’t need to use any technical indicators like the RSI and moving averages.
Thirdly, the price of the asset will then recover to approximately its original value. This creates a “U” shape on the trading chart, the “cup” after which this pattern is named. As forex traders, we are constantly pressured to make profits that we sometimes lose sight of the importance of sticking to the trading plan or practicing proper risk management. A breakout is when the price moves above a resistance level or moves below a support level. An additional option is to stay in the trade as long as the price is trending in your favor. You may not want to completely exit the trade, where the price move is offering more potential to add profit to your trade.
How To Trade When You See The Cup And Handle Pattern
No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. This algorithm works extremely well when backtesting using forex and stock data provided by Finnhub stock api. The accuracy rate for cup and handle pattern for forex and stock on Daily timeframe are 65% and 68% respectively. We automated this backtesting process using the pattern recognition API ofHarmonicPattern.com harmonic scanner.
Remember that you should always use your knowledge and risk appetite to decide if you are going to trade based on ‘buy’ or ‘sell’ signals. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. This is used in conjunction with the Stocks Over Coffee Podcast on Technical Education Cup with Handles.
Author: Julia La Roche