The longer and rounder the bottom, the stronger the signal. Lastly, illiquidity also restricts the cup and handle from fully forming as trading volume also affects an asset’s price. When the pattern is complete, a long trade could be taken when the price breaks above the handle.

The handle often takes the form of a sideways or descending channel or a triangle. Buy when the price breaks above the top of the channel or triangle. When the price moves out of the handle, the pattern is considered complete, and the price is expected to rise. After the high forms on the right side of the cup, there is a pullback that forms the handle. The handle is the consolidation before breakout and can retrace up to 1/3 of the cup’s advance, but usually not more.

Fibonacci Techniques For Profitable Trading

should seek the advice of a qualified securities professional before making any investment,and investigate and fully understand any and all risks before investing. Have read to learn this pattern from a couple of other platforms but it was a bit difficult for me to comprehend, but it was easier for me to understand here. If you can see what other traders are seeing and determine how they are thinking, you can make smarter decisions and trade more effectively.

It creates a U-shape, or the “cup” in our “cup and handle.” The price then moves sideways or drifts downward within a channel—that forms the handle. A cup and handle is a technical indicator where the price movement of a security resembles a “cup” followed by a downward trending price pattern. 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 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.

When To Buy The Best Growth Stocks: How To Analyze A Stock’s Cup With Handle

Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. 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. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.

Whatever the height of the cup is, add that height to the breakout point of the handle. For example, if the cup forms between $100 and cup and handle pattern $99, and the breakout point is $100, the target is $101. Commodity and historical index data provided by Pinnacle Data Corporation.

Examples Of The Cup And Handle Pattern

If the handle drops below the lower half of the cup, it is no longer a ‘cup and handle’ pattern. In most cases, the handle should not dip below the top third of the cup for it to be a cup and handle pattern. In last one year this is the third time that Adani ports has formed cup and handle pattern. This pattern is more meaningful in weekly or monthly charts. REEMF started one in April of 2019 and went all the way to the end of May before spiking up. Here’s an example of a cup and handle in a longer time frame.

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Predictions And Analysis

The 1975 to 1978 Binary option was so strong that Gold exploded higher before forming any handle. The pattern is partially defined by this final return to growth. If the cup is followed by long-term stability in the asset’s price, then this is considered a revaluation or momentary dip rather than a trading 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 consolidation the stock recovers its lost value and resumes its previous growth. Above is an example of two cup and handles that formed in the Big Tech share basket on our Next Generation trading platform. The pattern on the left is more complex as the cup pattern is wavy and harder to identify. The pattern on the right is more traditional, with a clear cup shape, followed by a handle breakout to the upside.

Timeframes

Eventually, the stock finds a floor of support for weeks or longer before climbing again. Cup and handle chart patterns can last anywhere from seven to 65 weeks. Yep, this is a bullish pattern and can be a technical indicator for traders of a potential upcoming breakout. It can take some time for this pattern to develop … but traders like it because it’s easy to recognize and has an excellent risk to reward ratio.

• As with all chart patterns, trading volume and additional indicators should be used to confirm a breakout and continuation of the original bullish price movement.
• This reiterates that consistently making money trading stocks is not easy.
• Whether bullish candlesticks, bearish candlesticks or doji candlesticks each one tells a story.
• In other words, trading off this pattern requires patience and a rational approach to the market – something that is a challengefor many investors.
• Big caps sometimes can break out successfully with smaller volume surges.
• The cup and handle pattern is a very common pattern in technical analysis and a very bullish one.

The cup and handle pattern is a bullish continuation pattern that consists of two parts, the cup and the handle. The cup typically takes shape as a pull back and subsequent rise, with the candlesticks in the center of the cup giving it the form of a rounded bottom. The handle is made up of downward-sloping price action that soon breaks out above the upper resistance line to indicate the continuation of the original bullish trend. The pattern forms during as a result of consolidation a bullish movement and indicates a continuation of that bullish trend after its completion.

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Finally, the security breaks out again, surpassing its highs that are equal to the depth of the cup’s low point. The first example shows a shallow cup and handle pattern developing over the course of approximately two to three months. The cup features a gentle pullback after a strong bullish movement and the right side of the cup reaches the same price level as the left side of the cup.

Author: Jesse Pound