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. 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.
The first profit target is estimated by measuring a distance equivalent to the size of the handle, starting from the breakout point. The second profit target is estimated by measuring a distance equal to the depth of the cup, again, starting from the point of the breakout. Just like in other chart patterns, the Cup and Handle pattern provides a logical entry point, a stop-loss level, and a profit target. You can add this pattern to your trading arsenal to improve your market analysis and trading skills. The pattern forms when the asset price drops slightly but then rebounds back to the level at which the fall has started.
The handle usually takes the form of a descending triangle or sideways channel. When the handle forms, traders typically monitor the price to see if it breaks above resistance. If it does, it means the price is expected to rise, which makes it a good time to enter the trade.
Protect Your Trade With a Stop-Loss
That’s why it’s crucial to set up stop-losses before initiating your trades. Other examples of continuation patterns include pennants, bullish and bearish flags, and ascending and descending triangle patterns. As you can see, the price action managed to reach both profit targets. You don’t have to exit the trade when the price action is moving in your favor, showing the potential of adding more profit to your trade.
If the pattern is bullish, the signal should be a bullish breakout through the handle. If the pattern is bearish, take the two bottoms of the cup and stretch a curved line upwards until the rounded part reaches the top of the pattern. Take the right side of the cup afterwards and draw the shape of the bullish handle. If the pattern is bullish, take the two tops of the cup and stretch a curved line downwards until the rounded part reaches the low of the pattern. Then take the right side of the cup and draw the shape of the bearish handle. After the price breaks the handle downwards, we see the creation of a new bearish move.
- Finally, you can use a buy-stop trade to take advantage of a bullish trend.
- This was followed immediately by another bullish thrusting lines pattern, indicating that the bullish trend was not ending.
- The 100% level, represents a conservative price target, and 162%, is a very aggressive target.
- This rally failed to reach the measured move target at 50, calculated by adding the four-point depth of the cup to the resistance line near $46.
The cup and the handle have been shown using blue lines. This will give you an opportunity as the trader to go long. The bottom or top of the pattern is rounded, hence, you should use a rounded drawing tool. We have applied two targets marked as Target 1 and Target 2. The two tops of the cup are at approximately the same level.
This drop, or “handle” is meant to signal a buying opportunity to go long on a security. When this part of the price formation is over, the security may reverse course and reach new highs. Typically, cup and handle patterns fall between seven weeks to over a year. The chart shows two potential entry points denoted by the green arrows.
Is A Cup and Handle Bullish Or Bearish? What Does It Mean?
Look for a roughly 30% downward move, an inverted U-shaped correction, and a bounce handle. The handle will typically form a descending trendline … Take a look at the chart below for an example. In most cases, the decline from the high to the low of the handle shouldn’t exceed 8%–12%.
The only difference on this forex chart is the absence of the volume tool. The breakout signal can occur in different ways depending on the trader’s preference. Some trader’s look at the resistance level taken from the horizontal between the highs of the cup. Other traders use a break of the handle trendline as a long entry point.
The conditions for the cup and handle pattern
The only problem with the cup and handle pattern is that does not appear that frequently and therefore, there may not be many trade opportunities coming your way. An alternative way to find out the cup and handle patterns is to first spot the bullish flag and immediate scan to the left of the chart. If you notice a rounding bottom price pattern, make use of the drawing tools to see if the cup and handle formation can be validated and then identify the support level. Another related technical analysis indicator to keep in mind is an inverted cup and handle pattern. Some traders consider that pattern a harbinger of a downtrend in the asset’s price that helps identifying selling opportunities.
The handle follows the classic pullback expectation, finding support at the 50% retracement in a rounded shape, and returns to the high for a second time 14 months later. The stock broke out in October 2013 and added 90 points in the following five months. The cup and handle is one of many chart patterns that traders can use to guide their strategy. The bottom of the cup is a stabilizing period where the price moves sideways.
Traditionally, the cup has a pause, or stabilizing period, at the bottom of the cup, where the price moves sideways or forms a rounded bottom. It shows the price found a support level and couldn’t drop below it. It helps improve the odds of the price moving higher after the breakout. A cup and handle is a technical analysis pattern that appears on a chart as a U-shaped pattern, followed by a small downward drift, resembling a handle. 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 how to change your career with a blog shouldn’t pull back too close to the bottom of the cup. In a Cup and Handle pattern, traders place their stop loss below the handle’s lowest point . At the same time, placing the stop loss close to the entry point means there’s much room for the position to grow when the price rises as expected. The handle is formed by a bearish price action that occurs after the formation of the cup.
Bullish Cup and Handle Pattern
The first entry takes place on the breakout above the upper end of the price channel akin to a bullish flag with a spike in volume as verification of the move up. The second entry uses the resistance level between the highs on either side of the cup as a key price level. This method is less aggressive, but the patience of additional confirmation can shield against a false breakout with regards to the handle channel. First is the cup, which is a rounded bottom extending over time.
Further Educational Resources
So much depends on https://business-oppurtunities.com/ and volatility in effect at the moment. Economic and fundamental news also determine how acute the rounded bottom of the cup will be, and how long the handle will ensure. So far, in this article, we have only highlighted when the cup and handle produced stellar results. Well guess what folks, sometimes it’s not always sunny outside. One point of clarification, you should not worry yourself trying to come up with exact measurements for your cup and handle pattern. This will only lead to a search for a needle in a haystack, which is a waste of time.
As a pullback, the handle is a short-term aspect of the pattern. Because it is a retracement, the caveat for all retracements applies here. Expect a relatively short-term period of time in order to predict a strong continuation of the bullish trend. First of all, the cup and handle is the trend continuation pattern only.