Cup and Handle Pattern Trading Strategy Guide

You must know the risks and be willing to accept them to invest in the securities markets. Do not risk capital you cannot afford to lose completely. This website is neither a solicitation nor an offer to Buy/Sell any security. No representation Cup and Handle Pattern is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or method is not necessarily indicative of future results.

Length — a longer U shape bottom can indicate a strong signal. In contrast, the V shape bottom is connected to a weakened signal and should be avoided. Want the full method for trading this pattern and others? The Complete Method Stock Swing Trading Course reveals more little things to look for that will improve results with these types of patterns.

Chart pattern: Cup with handle

You should buy when the price breaks above the channel’s top or triangle. When the price moves out of the handle, the pattern is considered complete, and the price is expected to rise. Consider a scenario where a stock has recently reached a high after significant momentum but has since corrected, falling almost 50%. At this point, an investor may purchase the stock, anticipating that it will bounce back to previous levels. The stock then rebounds, testing the previous high resistance levels, after which it falls into a sideways trend. In the final leg of the pattern, the stock exceeds these resistance levels, soaring 50% above the previous high.

The pattern on the right is more traditional, with a clear cup shape, followed by a handle breakout to the upside. The cup and handle pattern is the result of a bullish breakout. When the broad market is in a bullish trend, that makes the breakout a higher probability move. However, if the broad market is in a bearish trend, then a bullish breakout is less likely to occur. To spot a true inverted cup and handle pattern, the shape needs to be obvious and the trend line needs to curve up and then down like an upside-down cup.

How to Trade a Cup and Handle Pattern

The cup and handle pattern is a trading pattern that can be analysed in all financial markets. The cup and handle formation is created when the price of an asset falls but then makes its way back up to the point where the fall started. Cup and handle patterns are found on all timeframes, from intraday charts up to weekly and monthly charts.

• Cup and handle getting pretty tight in the falling wedge.
• It indicates the correction of a previous uptrend and eventually signals its resumption.
• No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website.
• It was developed by William O’Neil and introduced in his 1988 book, How to Make Money in Stocks.
• $LTHM potential #lithium leader working on a handle for a deep 44% cup base w/ handle base.
• When it comes to trading, the term “handle” has two meanings, depending on which market you are…

Cup rims The two cup rims should reach the bottom at close to the same price. Cup handle To the right of the cup there should be a handle. The cup’s recoil handle should not rise above the top of the cup, but often tracks 30% to 60% above… If you’re https://www.bigshotrading.info/ short, you want to exit your trades before swing low or Support. If you’re long, you want to exit your trades before the swing high or Resistance. In a trending market, the price can remain above a Moving Average for a long period of time.

Cup and Handle chart pattern: How to capture a swing for consistent profits

Stop-loss orders may be placed either below the handle or below the cup depending on the trader’s risk tolerance and market volatility. When the price breaks below the handle, it signals traders to exit long positions or enter a short position. A stop-loss order is then placed above the handle and a profit target is calculated by the height of the cup subtracted from the handle breakout point. Alternatively, traders could double the size of the handle and subtract that from the handle breakout point.

Raise the stop as price rises.ThrowbacksThrowbacks hurt performance.Short handleStocks with handles shorter than the median 22 days show superior post breakout performance. Some traders use momentum strategies because they believe that stocks that have been moving up or down rapidly in price will continue to do so into the future. For example, traders may rely on technical signals like the cup-and-handle pattern to identify stocks that are ready for a breakout. The second example is another classic cup and handle pattern that develops over three to four months, with the handle forming over approximately two weeks. The cup retraces slightly more than half the preceding movement, which is relatively mature prior to the cup and handle pattern’s formation. The right side of the handle rises higher than the left and the pattern slightly overestimates the extent of the bullish continuation after the breakout.

How Do You Scan for a Cup and Handle Pattern?

Secondly, you need to learn to identify the length and depth of a true cup and handle, as there can be false signals. 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. Technical traders looking at stock prices over a longer time period will have no trouble spotting a cup and handle pattern. Before jumping in, take the time to look at the volume behind the trading action and establish the strength of the pattern.

• It’s important for traders to understand the psychology and market action that contributes to its formation, and there are several phases to consider.
• The founder of the term, William O’Neil, identified four primary stages of this technical trading pattern.
• Ideally, the handle will form and complete over 1-4 weeks.
• The subsequent decline ended within two points of theinitial public offering price, far exceeding O’Neil’s requirement for a shallow cup high in the prior trend.
• The inverted handle pattern forms when the asset emerges out and begins to fall from the right side of an inverted cup.
• James Chen, CMT is an expert trader, investment adviser, and global market strategist.
• The handle should generally by anywhere from a quarter to a little less than a half of the cup duration.