Not every chart that looks like this is a PROPER cup and handle pattern. In a trending market, the price can remain above a Moving Average for a long period of time. If you ask me, it’s when the price breaks below the low of the handle, thereby invalidating the Cup and Handle pattern. The Cup and Handle pattern confirmation comes when the price breaks above the “handle” — and that’s where you can enter a trade.

Sign up for Market Minutes to receive powerful market analysis, top trade ideas, & helpful blog updates. Proper handle depth – Handles typically slope lower, but the low of the handle should not be more than 12% below the handle high. More than 15% below the high is too deep, and increases the odds of pattern failure.

If you’re trading the inverted cup and handle chart pattern, your best bet is on the downside. The handle is formed inside the trading range when prices fail to reach the previous high, and pull back down to re-test the support line once again. A trend change happens when the price breaks through key support or resistance levels.

Cup and Handle Pattern: What Does It Mean?

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. The cup and handle pattern is a formation on the price chart of an asset that resembles a cup with a handle. As its name implies, the pattern consists of two parts — the cup and the handle. Further down in the article we have several charts to show how it looks like in a chart.

The handle is completed when price breaks above the intervening peak . 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. Let me remind you that the inverted cup and handle breakout is only confirmed when the price action closes below the support line. When you plot it on a chart, this EMA acts as a dynamic support and resistance level.

The stop-loss is usually located in the upper third part of the cup, corresponding to the position of the handle. The stop-loss ideally should be on the upper-third end of the cup and placed at the lowest point of the handle. When the handle witnesses multiple swings in price, the stop-loss is placed at the bottom of the most recent swing. The exit point in the trade is estimated based on the target. A general estimate of a cup and handle pattern target is the height of the cup and the height of the handle’s breakout point.

Below is an example of a EUR/USD cup and handle daily chart, where the handle represents a channel or trading range angled down. Matching the previous peak, the stock’s volume will taper off. The share price will establish a new level of support that trades sideways for a short term .

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How to Trade the Cup and Handle with a Low-risk Entry Point

In my experience, narrow or tall patterns tend to perform better than wide or short ones. You can find this pattern on both uptrends and downtrends when the price climbs up steadily to reach a new high, and then falls back down to test the low of the initial move. That’s because the price tends to continue its upward move at the beginning, and then reverses direction when bullish momentum declines. Investment services and the Brokerage Accounts for treasury securities are offered by Jiko Securities, Inc. (“JSI”).

• You need to enter a buy trade on the breakout of the handle’s resistance trend line.
• It also holds the crowd proclaimed title as one of the most profitable and reliable breakout patterns.
• The pattern begins with an upward trend in stock price that leads to a peak.
• We explore the cup and handle pattern, as well as the inverted cup and handle, and show you how to trade when you recognise these patterns.
• A referral to a stock or commodity is not an indication to buy or sell that stock or commodity.

DTTW™ is proud to be the lead sponsor of TraderTV.LIVE™, the fastest-growing day trading channel on YouTube. Also, the right side of the cup should always come nearer to the previous high point. Finally, the handle should move lower to about half of the top of the handle.

How to use Structure and ride massive trends

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Traders use this indicator to find opportunities to buy securities with the expectation that their price will increase.

Like all technical indicators, the cup and handle should be used in concert with other signals and indicators before making a trading decision. Specifically, with the cup and handle, certain limitations have been identified by practitioners. The first is that it can take some time for the pattern to fully form, which can lead to late decisions.

All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. Please see Open to the Public Investing’s Fee Schedule to learn more. You will automatically start receiving daily market analysis, trade ideas, and blog updates. To confirm the pattern, there should be a substantial increase in volume on the breakout above the handle’s resistance. For the lowest-risk entry point, set a buy stop for entry above the high of the handle. Early entries can provide you with a lower buy price, but reduce your share size to compensate for slightly higher risk.

Timeframes

It is created when the stock price declines after reaching a peak, forms an upside-down cup shape, and then rallies back to near the previous high before declining again. However, note that cup and handle pattern failure may occur more frequently in overall bearish markets. Always use stops to minimize risk in case of a failed cup and handle pattern. Near the high is best – The best cup and handle patterns develop within an existing uptrend and with the price near 52-week highs.

If the handle dives too deep and erases most of the gains of the cup, you should avoid trading the pattern. A dull market consists of low trading volumes and tight daily trading ranges. A doji is a trading session where a security’s open and close prices are virtually equal. Volume should contract as the handle forms and then expand on the breakout. It’s important to close your short position quickly, as you know the „handle“ will form soon. The price tends to rebound when it hits the support trendline.

The pattern forms during as a result of consolidation a bullish movement and indicates a continuation of that bullish trend after its completion. A Cup and Handle can be used as an entry pattern for the continuation of an established bullish trend. The cup has a soft U-shape, retraces the prior move for about ⅓ and looks like a bowl. After forming the cup, price pulls back to about ⅓ of the cups advance, forming the handle. The full pattern is complete when price breaks out of this consolidation in the direction of the cups advance.

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What happens after a cup and handle pattern?

At this point investors expect it to remain stable for a period of time before resuming its previous growth. This means that the handle of a cup and handle is considered a strong indication that the stock is poised for growth. A Cup and Handle is a chart pattern where the price movement of an asset resembles a “cup” followed by a downward trending price pattern. A breakout from the handle’s trading range signals a continuation of the previous uptrend. The tables turn once again when the decline stalls high in the broad trading range, giving way to narrow sideways action.

This includes drawing https://bigbostrade.com/lines for the handles to highlight the breakout points, notes to mark important areas, or arrows to highlight potential entry and exit points. We also offer a chart scanner with pattern recognition software that works automatically to detect and highlight trends for your ease of trading. The other chief criticism of this pattern is the prospect for false signals. Shallow cups or retracement that fails to get back to the previous resistance level can see the pattern fall apart when it comes time to form the handle. This is why it’s so important to pay attention to volume when assessing the pattern strength. 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.

Think of it this way – if you know exactly when to enter the market, you could earn 50% or more in a single year. That’s the kind of returns you can achieve with this powerful chart pattern. Ross Cameron’s experience with trading is not typical, nor is the experience of traders featured in testimonials. Becoming an experienced trader takes hard work, dedication and a significant amount of time. However, you will face the risk of missing the trade if the price fails to pullback and continues to advance uninterrupted. When a pullback occurs, it forms a rounded bottom that is no deeper than 50% of the retracing showing the pattern of the cup.