Trading The Cup And Handle Chart Pattern For Maximum Profit

The cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over 1-4 weeks. The next pullback carves out a rounding bottom no deeper than the 50% retracement of the prior trend. The security posts a significant high in an uptrend that accelerated between one and three months prior. 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.

During bear markets, some good cup with handle bases show a large, double-digit decline within the handle. But again, it should not exceed the drop within the cup. The cup with handle is to serious investors in growth stocks what the single is to a baseball fan. It’s the starting point for scoring runs and winning the investing game.

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Third, the security will rebound to its previous high, but subsequently decline, forming the “handle” part of the formation. Finally, the security breaks out again, surpassing its highs that are equal to the depth of the cup’s low point. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. The pattern can be traded on all markets and timeframes. No technical pattern works all the time, which is why a stop-loss is used to control the risk on trades that are less efficient. A cup and handle is typically considered a bullish continuation pattern.

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Do Cup And Handle Patterns Work?

As you see, the price reached the first target of the pattern prior to the entry, had you waited for the candle close to enter. Sometime afterwards, the price action reaches the second target on the chart. You have the option to close your entire position at this second take profit target. However, you could opt to hold a portion of the trade for further gains if you see price action continuing to trend upwards. The yellow line on the chart is an upward trend line, which measures the bullish activity of the price action.

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. The false breakout in the handle on August 13 occurs on low trading volume, demonstrating the importance of using trading volume as a method of confirming the breakout.

Golds Super Bullish Cup & Handle Pattern

A cup and handle chart may indicate either a continuation pattern or a reversal pattern. A reversal pattern can be seen when the price is in a long-term downtrend, then forms a cup and handle that reverses the trend as the price begins to rise. A continuation pattern on the other hand occurs when there’s an uptrend; the price rises and forms a cup and handle, and then continues to rise.

One hundred percent of the extension is considered a conservative price target for cup and handle pattern breakouts, while 162 percent is considered an aggressive price target. Another consideration when evaluating a cup and handle pattern is trading volume. Other characteristics of the pattern that have to do with its shape are also important. For instance, the cup should be round rather V-shaped, as the former indicates consolidation whereas the latter is too sharp of a reversal from the high. The cup also should be relatively shallow – it should retrace only one-third to one-half of the prior uptrend.

Cup And Handle Chart Pattern: How To Exit Your Winners And Ride Big Trends

The cup and handle pattern is a bullish continuation pattern triggered by consolidation after a strong upward trend. The pattern takes some time to develop, but is relatively straightforward to recognize and trade on once it forms. 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 article will cover the basics of the cup and handle pattern and introduce the key points to consider when trading the pattern. This large U-shaped pattern may look like a typical double top but for the purposes of this pattern, it is called the cup. Forex dealer Noting key resistance at top#1 and top#2, speculators begin to initiate short positions. From a technical perspective, this is a very important part of the pattern. At this point more positive fundamental news is released and the stock price rallies.

• Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.
• 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.
• I have to be conservative as a counterbalance to the perma-bull gold bug universe but make no mistake.
• The first step is to identify an uptrend and a rounded retracement into that bullish trend.
• 100-period Moving Average to ride the medium-term trend.

After the right side of the cup is formed there is another shallower pullback that forms the handle. The handle should not be that deep and should remain in the upper half of the cup’s range. A shallower handle shows more strength than a deep one. A cup and handle pattern consists of several candlesticks that form a u formation, which makes up the base of the cup. Then, near the top of the top of the cup, price rejects and creates a falling wedge or falling channel.

The image above displays the standard cup and handle pattern. To trade this formation correctly, a trader should place a stop by order slightly above the upper trendline that makes up the handle. This way, the buy order will only execute if the price breaks above the upper resistance level. This will avoid jumping into a cup and handle pattern too early by entering a false breakout. For traders who want to add a little more certainty to their trade, they should wait for the price to close above the upper trendline of the handle.

Trading Cup And Handle Patterns

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.

With selling pressures satiated and the flow of fundamental news decidedly bullish volume increases dramatically and the stock works toward a fresh new high. This very small U-shaped pullback is called the handle. The next session Wall Street analysts make positive comments and the stock surges to a new high on dramatically increased volume.

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This article will explore how to identify and trade the cup and handle pattern in various financial markets. There are a bunch of candlesticks that form the consolidation of a u bottom pattern. Once price rejects at the top of the cup, it fails and forms the handle. Once price breaks the top of the cup and holds then it’s a bullish continuation pattern.

Once the price starts forming a handle we wait for a consolidation . Ideally, volume also contracts/drops during the consolidation. We then trade a breakout of the consolidation with a stop loss below the consolidation low . The cup and handle strategy for stocks is one of my favorites. The strategy captures consistent and often explosive price moves/profits. The pattern is easy to find and trade, although there are some very specific traits you will want to look for.

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. 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.

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Once price has found a base, several candlesticks form the rounded cup bottom. At this point, price fails to break resistance and retraces down the side of the cup, thus forming the handle. Watch our video on how to identify and trade cup and handle patterns.

They indicate where a previous rally met resistance and where a previous decline met support. The Handle is a trading range or a consolidation area that develops after Price action trading the Cup is completed. This may be a bullish flag or pennant pattern, or a short pullback. Ideally, the handle should retrace no more than 1/3 into the cup’s depth.

Here’s what the cup and handle is, how to trade it, and things to watch for to improve the odds of a profitable trade. The security finally broke out in July 2014, with the uptrend matching the length of the cup in a perfect measured move. The rally peak established a new high that yielded a pullback retracing 50% of the prior rally, nearly identical to the prior pattern. This time, the cup prints a V-shape rather than a rounded bottom, with price stalling under the prior high.

He founded the stock brokerage firm, William O’Neil & Co. During 2016, Netgear stock rose from a low of $33.39 to $60.80 in a steep uptrend. From October 2016 to December 2016 it formed a cup formation (u-shape), and since December, it is now forming a handle structure (see “Gearing for a breakout,” below). A continuation pattern is another trade opportunity to watch for. It is when a handle forms, as described above, but within the context of a big strong uptrend .

Author: Daniel Dubrovsky