Cup And Handle Stock Chart Pattern

By appearance, the pattern resembles a teacup with a handle and is accordingly named. The cup and handle pattern is a trading pattern that can be analysed in all financial markets. 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 pattern, illustrated below, is considered a bullish trading trend.

cup.and handle chart

The other examples of historical cup and handle patterns are in Gold. The current cup and handle pattern in Gold projects to a measured upside target of around $3,000. The pattern could develop in days, weeks, or months, and there are no specific guidelines on how much time it would take for this pattern to develop. Finally, before concluding this section, there is one additional tip that I would like to share.

Picking A Target Or Profitable Exit

Chart pattern is a term of technical analysis used to analyze a stock’s price action according to the shape its price chart creates. Trading by chart patterns is based on the premise that once a chart forms a pattern the short term price action is predictable to an extent. Cup and handle patterns can also occur on shorter timeframes, although trading these requires quick recognition and confirmation of the breakout at the end of the handle in order to profit. 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.

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. 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. Use the smaller height, and add it to the breakout point for a conservative target, or use the larger height for an aggressive target.

The handle is the consolidation before breakout and can retrace up to 1/3 of the cup’s advance, but usually not more. Alan received his bachelor’s in psychology from the University of Pittsburgh and is the author of The Master Swing Trader. A saucer, also called “rounding bottom”, refers to a technical Dividend charting pattern that signals a potential reversal in a security’s price. If there is no handle, then the cup itself must stretch a minimum six weeks. You need to know if that cup with handle is as it should be, or if it has flaws. Monero could be in the final stages of forming the handle for the cup.

Past performance of a security or strategy does not guarantee future results or success. You can go down to the lower timeframe and analyze but it may or may not increase the odds of a breakout working out. The cup and handle pattern is a pattern that traders use to identify whether the price of an asset will continue moving upwards. As the name suggests, the pattern is made up of two sections; a cup and handle. The cup pattern happens first and then a handle happens next.

Now, let’s revisit the same chart using the logic of selling the supply or upper resistance line on the chart. On a 5-minute time frame, the handle is made up of at least 4 candlesticks but no more than 10. The reason I like to time box the handle, is because I want to avoid the scenario of being trapped in a sideways conundrum. Starting from point A, go back in time to find point B where priceB is around priceA.

  • If the volume does not increase, the probability of a false break out increases.
  • Need to show me supply stopped coming to market right below that $94 line.
  • 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.
  • At the time of the trade, a stop loss is placed below the recent consolidation.

Nevertheless, a study of some history reveals that most people do not understand how bullish this pattern is when it occurs over a long time frame. It does not guarantee that after the Handle, there will be a definite uptrend even though the pattern in principle prompts you to anticipate that. The trend line needs to curve up and then down like an upside down cup. Now, you don’t want to put your stop loss at the exact low of the handle because the market could trade into that area of value and reverse higher. “Your stop loss should be placed at a level where if the market reaches it, your trading setup is invalidated”. The good thing about waiting for the close is it’s less prone to false breakout.

Cup And Odd Handle

Some students come into the Trading Challenge with preconceived ideas about patterns. Sometimes that’s a bad thing because my top students and I trade penny stocks based on volatility. The Cup and Handle pattern gives a long entry signal, i.e., a buy, when the price breaks above the resistance formed at the top of the cup.

Inverted cup and handle patterns are also possible during downtrends and signal bearish continuations. In this case, the cup shape is inverted such that it represents a resurgence in price after a downtrend followed by a downward movement. The handle slopes upwards before breaking out sharply downward to continue the original bearish trend. It is seen as a bullish continuation pattern, due to this, it is essential to identify a prior uptrend.

Bearish Cup And Handle Pattern

It represents a consolidation period for a strong asset, during which traders move away from a stock, which is generally growing well. After this short-term https://www.bigshotrading.info/ consolidation the stock recovers its lost value and resumes its previous growth. Then, there is a rally that is more or less equal to the initial decline.

The confirmation of the pattern comes in at the green circle at the moment when the price action moves above the handle. You would typically look to buy the AUD/USD Forex pair when the candle closes above the handle. If you trade a bullish Cup with Handle pattern, you should place your stop loss order below the lower level of the handle.

Readers must consider their financial circumstances, investment objectives, experience level, and risk appetite before making trading/investment decisions. Additionally, TradeVeda participates in several affiliate programs that provide us a means to earn commission by linking to the affiliated websites and/or products. Hence, TradeVeda may be compensated for referring traffic and business to other websites/products. With the Breakout Trading Strategy, your goal is to enter a trade when the price breaks out of the handle. Market volatility is an important parameter that in a way helps determine how risky a potential investment might be. In essence, being able to see the volatility of the asset will allow you to assess whether the market fits into the risk profile that you are comfortable with.

cup.and handle chart

The pattern could appear after a price increase or a price decrease. Of course the pattern has its bearish equivalent, the Inverted Cup and Handle, which we will touch upon later as well. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors.

If you’re not ready to take on the live markets, you can open a risk-free demo account to identify the cup and handle pattern and practice your trades. This is useful when trading both the cup and handle and the inverted cup and handle, because you can speculate on upward or downward price movements. Knowing how fibonacci sequence to read and interpret charts is one of the most important aspects of trading. 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. Whenever you are looking at chart patterns and setups, try to think of things creatively.

How To Trade The Cup And Handle Pattern

Volume should ideally rise at least 40% above its 50-day average. Big caps sometimes can break out successfully with smaller volume surges. Be aware that the handle itself, which must stretch for a minimum five trading sessions, can morph into a base of its own in certain cases. That’s not a problem; it’s often a stock’s way of offering a buy point that’s clearer or lower than that suggested by the larger pattern. In this example, the stock RHI had a nice bottom that formed into a deep cup. The important item to note is that the right side of the cup cut through the Ichimoku cloud and even made an attempt at trying to move beyond the cloud itself.

The Complete Penny Stock Course.” It answers most of the questions new traders ask me. O’Neil said to look for a 30% upward move to the rim of the cup. Although many of our stocks have moved up, plenty of quality opportunities remain.

How To Trade The Cup And Handle

Draw the extension tool from the cup low to the high on the right of the cup, and then connect it down to the handle low. The one-level, or 100%, represents a conservative price target, and 1.618, or 162%, is a very aggressive target. The next breakout attempt fails at the prior high, yielding a secondary pullback that holds near resistance, grinding out a smaller rounding bottom, which becomes the “handle.”

The change in the move is so gradual that the price action creates a rounded bottom on the chart. The Cup and Handle pattern is aptly named because this technical pattern actually resembles a cup with a handle on the chart. The stock needs to show a 30% uptrend from any price point, but it must be before the base’s construction. Or, the stock must show a minimum 20% increase from a prior breakout. In the above chart example, you can see how the stock made a nice round cup and had a strong handle, before continuing higher.

Cup And Handle Chart Pattern: How To Capture A Swing For Consistent Profits

All information regarding the likelihood of potential future investment outcomes are hypothetical. 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. O’Neil liked a downward handle as opposed to an uptrending handle. His backtesting showed uptrending handles often lead to cup and handle pattern failure.

Author: Ian Sherr

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