Cup and handle chart pattern How to trade the cup and handle

Inverted cup and handle patterns can be identified by their large crescent shape followed by a less extreme, upward retracement. The entire pattern usually takes within 3 to 6 month to develop. These patterns are meant to serve as being indicative of a bearish reversal.

The reverse cup and handle pattern is an upside-down cup followed by a handle and a breakout to the downside. The pattern is formed by a drop, a rally, then another drop back to where the rally started. A handle forms, which should be less than a third the size of the cup. If you look at the regular cup and handle pattern, there is a distinct ‘u’ shape and downward handle, which is followed by a bullish continuation.

Cup and handle patterns: bullish or bearish?

The inverted handle retraces the initial move, but not to the level of the original trend. Once you see a retracement in the form of an inverted handle of the original inverted cup pattern, setting a stop loss while selling the trend could be a potential trade idea. The target with the cup and handle pattern is the height of the cup added to the breakout point of the handle.

The stop loss order of the trade needs to be placed above the handle. Its location is shown with the red horizontal line on the chart. This is the H4 chart of the AUD/USD Forex pair for Sep 3-21, 2016. The image shows a bullish Cup with Handle chart figure with the blue lines on the chart. Now that we have a better understanding of the structure of the pattern, we are going to summarize some trade management ideas around this pattern. Let’s take a look at a potential Cup and Handle trading system and the rules we need to follow when trading this pattern.

Cup with Handle Signal

If you’re long, you want to exit your trades before the swing high or Resistance. Also, give your stop loss some buffer below the swing low as you don’t want the price to breach the lows, and only to reverse higher. And when the trading setup is “destroyed”, the reason to stay in the trade is no more. So whenever you see a buildup of higher lows into resistance, it’s a sign of strength. He is the most followed trader in Singapore with more than 100,000 traders reading his blog every month… 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.

After the Cup is formed, the market has shown signs of bottoming as it makes higher lows towards Resistance. An inverse head and shoulders, also called a head and shoulders bottom, is inverted with the head and shoulders top used to predict reversals in downtrends.

What Happens in a Cup-And-Handle Pattern?

The price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point. Follow this step-by-step guide to learn how to scan for hot stocks on the move. Bitcoin and Ethereum are the two largest cryptocurrencies, commanding approximately 60% of crypto’s totalmarket capitalization. If both Bitcoin and Ethereum are in an uptrend, then the chance of a bullish breakout is higher. If both Bitcoin and Ethereum are in a downtrend, then a bullish breakout has a smaller chance of occurring. After rallying 300% to begin 2021, Ethereum began consolidating the uptrend to form the cup. The cup was relatively shallow, at nearly 30% of the previous uptrend.

If you trade a bullish Cup with Handle pattern, you should place your stop loss order below the lower level of the handle. If you trade a bearish Cup with Handle your stop loss order should be placed above the upper level of the handle. When we get this indication, we can buy or sell the Forex pair depending on the potential of the pattern. The bearish Cup & Handle starts with a bullish price move, which gradually slows down and turns into a bearish move. As we said, the classic cup and handle pattern has its bearish equivalent – the bearish Cup & Handle, which is a mirror image of the standard Cup & Handle. This is the H1 chart of the most traded currency pair – EUR/USD. In the middle of the image you see a bullish Cup and Handle pattern, which is illustrated with the blue lines on the graph.

TRX Technical Analysis: Reversal Brings Cup And Handle Breakout

A buy signal is triggered when prices surpass the high of the right side of the cup. The cup and handle indicator is a technical pattern found on crypto price charts. It indicates the correction of a previous uptrend and eventually signals its resumption. The pattern exhibits clearly defined entry and risk levels but can be difficult to interpret in crypto markets due to fragmented volume metrics. The cup and handle is considered as a bullish signal, with the right-hand side of the pattern having trades in low volume. The formation of the pattern may be as short as a few candles, or long as several weeks . 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.

• The buy signal is confirmed when the stock breaks above the resistance level that capped the uptrend during the handle formation.
• Trading range forms on the right-hand side as the cup is completed, and that makes the handle.
• The cup-and-handle pattern doesn’t indicate how long a price rise will last.
• Your order will only execute if the price breaks through the pattern’s resistance.
• Now that prices are near their old high, bullish traders stop buying and wait to see if a breakout takes place.
• That small pause gives us a good low risk opportunity to get into the trade to ride the next wave of uptrend.

Register for a live account now or practise first with virtual funds on our demo account to familiarise yourself with the platform. The decrease could stop a bit before the midpoint, or could go a bit below. Your email address is stored securely and updates are pertinent to cryptocurrency trading.

Cup and Handle Pattern Trading Strategy Guide

The cup and handle pattern is a bullish pattern followed by a breakout. The cup-and-handle pattern can be seen on all types of charts including bar, candlestick, and point and figure.

• Like any form of pattern and technical analysis, there are times when this predictor works well and other times when the forecast does not work out.
• All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
• Ideally, this decline should retrace about 1/3 of the previous advance and no more than 2/3 of the advance.
• Price makes a straight or nearly straight down move before reversing and heading up.
• For example, a day trader may scan for stocks with a high average true range , and a swing trader might search for stocks that have performed well in recent weeks.

After the high forms on the right side of the cup, there is a pullback that forms the handle. Check out this step-by-step guide to learn how to find the best opportunities every single day. A step by step guide to help beginner and profitable traders have a full overview of all the important skills (and what to learn next 😉) to reach profitable trading ASAP. It is however advisable to remain in the trade as long as the price is trending favorably. You may not want to completely exit the trade, where the price move is having more potential to increase the profit of your trade. Therefore, you can observe clues in price action so as to increase the profits of the trade. William O’Neil created this pattern and introduced it in his book, How to Make Money in Stocks, in 1988.

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. We’ll be discussing the ins and outs of the indicator and to help you understand https://www.bigshotrading.info/ some of the limitations. Target 2 – equals the vertical size of the cup applied at the moment of the breakout through the handle. The Cup with Handle confirmation comes when the price breaks out of the handle.

Volume confirmation is key when trying to identify a stock that is ready to break out. Look for large increases in volume to suggest that institutional investors are getting behind the stock. According to Bulkowski , the averaged maximum decline of the inverse cup and handle reversal cup and handle is 16%. The Price action course is the in-depth advanced training on assessing, making and managing high probability price action trades. The Parabolic SAR has aligned 6 dots bellows the candlesticks to show a definite reversal in price.