Ways To Trade The Cup And Handle Pattern

The bottom of the cup should be clearly rounded, and V shaped bottoms typically do not qualify. When this happens, the breakout will occur to the upside. The cup and handle pattern is a bullish pattern, so the only trade possible here is a long trade. 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.

Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years. He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. The final leg of the pattern is the reversal from C to D. This movement is usually 78.6% of XA and completes the Gartley pattern. Also remember that the cup should not be ‘v’ shaped or too deep. In this example, i have plotted a horizontal line above the handle highest high, then another horizontal line below the lowest low of the cup.

After a period of several higher highs and higher lows, consolidation is complete, and the price shoots below the trend line. The pattern can be seen in both small timeframes, like a one-minute chart, and in big time frames, such as daily, weekly, and monthly charts. It occurs when there’s a wave down of price, followed by a period of stabilization, and then followed by a rally of approximately equal size to the prior decline. The cup and handle pattern is called this way because it resembles a true cup and handle where the cup is in the shape of a letter “U” and the handle has a slight downward drift. Note that the measured move of the cup and handle pattern for the Ripple price is 60% suggesting a price target of $2.07.

What Is An inverted Cup And Handle?

The second target equals to the size of the cup, applied downwards starting from the moment of the breakout. If the cup and handle forms after a downtrend, it could signal a reversal of the trend. To improve the odds of the pattern resulting in a real reversal, look for the downside price waves to get smaller heading into the cup and handle.

Charles has taught at a number of institutions including Goldman Sachs, Morgan Stanley, Societe Generale, and many more. Please be advised that your continued use of the Site, Services, Content, or Information provided shall indicate your consent and agreement to our Terms and Conditions. If you do not Balance of trade agree with any term of provision of our Terms and Conditions you should not use our Site, Services, Content or Information. The price could rise a little and then fall, it could move sideways, or it could fall right after entry. Join Valutrades affiliate program and start earning commissions today.

Forex Chart Patterns Faq

As the name suggests, it is the same as the cup and handle pattern but the pattern is inverted. On the other hand, the inverted pattern gives a bearish signal. In an inverted pattern, the handle retracement direction will be upward. In this chart pattern, the bottom of the price pattern must be round like the bottom of a cup or a bowl. After the formation of the round bottom, the handle must be inclined.

• For example, if the distance between the bottom of the cup and handle breakout level is 20 points, a profit target is placed 20 points above the pattern’s handle.
• This drop, or “handle” is meant to signal a buying opportunity to go long on a security.
• Once enough time has passed , the stock is free to move higher for there is now an absence of stockholders who will sell at the first good opportunity.
• Most chart patterns provide signals that are only valid for a limited time period.
• It is not intended and should not be construed to constitute advice.

To become an even more effective trader, read about these seven common indicators that can help you make better trading decisions. Engulfing patterns, which are incredibly easy to identify, occur when a candle’s real body completely engulfs the previous day’s. When you’re able to identify these patterns, you can make a lot of money because you’ll be able to predict with relative confidence when a price is about to shoot up or shoot down.

Another method to plan the target is by using Fibonacci extensions. The extension can be plotted from the base of the cup to the starting point of the handle, and then to the low point of the handle. For cup and handle chart pattern a conservative price target, 100% of the extension can be considered. For an aggressive price target, 162% of the extension can be considered. Want the full method for trading this pattern and others?

Structure Of The Cup And Handle Technical Pattern

Depth of cup pattern/round bowl price pattern will give us the target price. For example, if the depth of the cup pattern is 100 pips, then the target price will also at 100 pips. From the breakout of the small flag, 100 pips above will be the target price.

No BS swing trading, day trading, and investing strategies. In the market where false signals are readily available, you can essentially use the Ichimoku Cloud to ignore signals, which lack conviction. 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 Promissory Note to avoid the scenario of being trapped in a sideways conundrum. We always recommend you to backtest first the pattern and trade it a few times on a demo until you’re comfortable and have a good understanding of what is Cup and Handle pattern. You are simply projecting the same distance in price to the upside using as a starting point the initial Cup peak.

Cup And Handle Patterns In Forex

The handle breakout acts as a confirmation of the pattern. When you identify the handle breakout, you can plot the two targets of the pattern – the size of the handle and the size of the cup. Chart patterns form when the price of an asset moves in a way that resembles a common shape, like a rectangle, flag, pennant, head and shoulders, or, like in this example, a cup and handle. If price breaks out in the opposite direction of the prior trend, the pattern is defined as “reversal”. If price breaks out in the same direction of the prior trend, the pattern is defined as “continuation”. Trading patterns act as a visual representation of past market activity and as indicators of future price movement.

Trading The Cup And Handle Pattern For Best Results

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. The reverse cup and handle pattern is an upside-down cup followed by a handle and a breakout to the downside. The pattern is formed by a drop, a rally, then another drop back to where the rally started. A handle forms, which should be less than a third the size of the cup. The cup and handle pattern is a trading pattern that can be analysed in all financial markets.

If the price has been running up by 50% before having a significant correction on the last few price swings, then use a 40% price target , for example. In the charts below I have picked a few good examples of the pattern, and highlighted some of the traits we are looking for in a cup and handle stock. The top of the cup will usually develop into a zone of resistance. The handle forms as the price reaches the resistance area a second time, and makes a smaller correction.

The two tops of the cup are approximately on the same area. This is the H1 chart of the most traded currency pair – EUR/USD. In the middle of the image you see a bullish Cup and Handle pattern, which is illustrated with the blue lines on the graph. Sometimes, the beginning of the decrease and the end of the increase could diverge in terms of the level they are supposed to be located at. However, a small discrepancy between the tops of the two trends is admissible.

Moreover, the upward movement of the Relative Strength Index towards overbought region shows that buyers are in control of the cross-border remittance token. Please see the further, important disclosures about the risks and costs of trading, and client responsibilities for maintenance of an account through our firm, available on this website. The handle should last no longer than one quarter of or one-third of the cup’s duration, and it should not retrace more than 38% of the move from the bottom of the cup to the top.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Author: Jesse Pound