Chart Patterns Cup and Handle

cup and handle reversal

In any case, the handle should retrace less than 1/3 to 1/2 the depth of the cup – the shallower the retracement, the more bullish the movement following a breakout should be. The handle can develop over one week to several months on a daily chart, although ideally completes in less than one month. When the price gets to the top of the cup, it begins moving sideways or downwards to make the handle. If the handle drops below the lower half of the cup, it ceases to be a cup and handle pattern. Most times, the handle should not go lower than the top third of the cup for it to be considered a cup and handle pattern.

cup and handle reversal

For example, if the distance between the bottom of the cup and handle breakout level is 20 points, a profit target is placed 20 points above the pattern’s handle. Stop-loss orders may be placed either below the handle or below the cup depending on the trader’s risk tolerance and market volatility. A stop-loss order gets a trader out of a trade if the price drops, instead of rallying, after buying a breakout from the cup and handle formation. The stop-loss controls risk on the trade by selling the position if the price declines enough to invalidate the pattern. Chart patterns occur when the price of an asset moves in a way that resembles a common shape, like a triangle, rectangle, head and shoulders, or—in this case—a cup and handle. They provide a logical entry point, a stop-loss location for managing risk, and a price target for exiting a profitable trade.

Cup and Handle chart pattern: How to capture a swing for consistent profits

A chart pattern is a graphical presentation of price movement by using a series of trend lines or curves. cup and handle reversal Chart patterns can be described as a natural phenomenon of fluctuations in the price of a…

  • The price movement of a breakout can be described as a sudden, directional move in price that is…
  • Now that charting software has made access to intraday charts easier, variations of this pattern have emerged such that it can be found within intraday chart time frames.
  • The cup and handle pattern is a continuation chart pattern that looks like cup and handle with a defined resistance level at the top of the cup.
  • To measure the target price, take the maximum height of the cup, and project that distance from the breakout point.
  • No one can explain how to trade cup and handle pattern better that way you have explained in this short article.
  • 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.

The cup and handle pattern occurs in small time frames, like a one-minute chart, and in large time frames, like daily, weekly, and monthly charts. It occurs when a price wave is downward, followed by a stabilizing period. Prices then rally to an approximately equal size to the prior decline. It creates a U-shape or the “cup” in the “cup and handle.” The price then moves sideways https://www.bigshotrading.info/ or drifts downward within a channel, forming the handle. The breakout should occur on high trading volume and continue above the trendline drawn from the left to the right side of the cup to provide confirmation. Again, beware cup and handle patterns that form at the end of a trend rather than partway through it, as they are less likely to signal a strong continuation.

Inverse Cup and Handle Sell Signal

You can even adjust your stop loss order right above the upper level of the zone. As an award-winning futures broker, NinjaTrader provides deep discount commissions and unmatched support. Download NinjaTrader free today to start analyzing inverted cup and handle patterns and building your trading strategy. One way to think of the inverted handle is a follow-up to an inverted cup.

Other technical analysis tools include indicators, chart patterns, and volume. Each of these can be used to help traders make better investment decisions.

What does the Cup and Handle pattern tell traders?

In this case, traders may focus on stocks or indexes that saw strong percentage advances heading into the cup and handle pattern. As you see, the price reached the first target of the pattern prior to the entry, had you waited for the candle close to enter. Sometime afterwards, the price action reaches the second target on the chart.

The cup should be more U-shaped than V-shaped, as a gentle pullback from the high is more indicative of consolidation than a sharp reversal. The U-shape also demonstrates that there is strong support at the base of the cup and the cup depth should retrace less than 1/3 of the advance prior to the consolidation pullback. The cup can develop over a period of one to six months on daily charts, or even longer on weekly charts. Ideally, the highs on the left and right side of the cup are at roughly the same price level, corresponding to a single resistance level. Shares and stock indices with lots of upward momentum prior to the cup and handle forming tend to produce the most favourable cup and handle patterns for trading.

Leave a Reply

Your email address will not be published.