Cup With Handle Chart Pattern

The cup and handle pattern occurs in both small time frames, like a one-minute chart, and in large time frames, like daily, weekly, and monthly charts. It occurs when there is a price wave down, followed by a stabilizing period, cup and handle chart pattern followed by a rally of approximately equal size to the prior decline. 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.

According to Bulkowski , the averaged maximum decline of the inverse cup and handle is 16%. Customers who want to use their accounts for day trading must obtain the broker-dealer’s prior approval. Customers must also be aware of, and prepared to comply with, the margin rules applicable to day trading. Day trading is subject to significant risks and is not suitable for all investors.

cup and handle chart

This is essential if the stock is to be projected to new highs after the breakout. Consequently, we require the distance from the left cup to the pivot, to be at least 6 weeks . On the other hand, we don’t want the cup to be so long as to be meaningless, so there is a maximum cup length of 325 sessions imposed.

Chart Patterns Cup And Handle

We measure the price/volume action in the handle using a proprietary metric called Handle Quality , which is also a component of CQ, mentioned earlier. No amount of analysis can make up for years of experience combined with advanced training. The rally indicated by the cup shape shows re-investment in an asset that had become undervalued.

cup and handle chart

A technical analysis cup and handle chart is a pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed. It is a bullish continuation pattern that is basically a variation of the double top chart pattern. The cup and handle pattern traditionally forms after a popular stock closes at a new high following a positive fundamental development.

If the pattern is bullish, the signal should be a bullish breakout through the handle. If the pattern is bearish, take the two bottoms of the cup and stretch a curved line upwards until the rounded part reaches the top of the pattern. Take the right side of the cup afterwards and draw the shape of the bullish handle.

The two elements create a pattern, which resembles a cup with handle on the chart. The Cup and Handle is a chart pattern, which has a bullish potential. If you trade a bullish Cup with Handle pattern, you should place your stop loss order below the lower level of the handle. If you trade a bearish Cup with Handle your stop loss order should be placed above the upper level of the handle. When we get this indication, we can buy or sell the Forex pair depending on the potential of the pattern. The bearish Cup & Handle starts with a bullish price move, which gradually slows down and turns into a bearish move.

Bullish Cup And Handle Trading Example

The reason I like to time box the handle, is because I want to avoid the scenario of being trapped in a sideways conundrum. Stay on top of upcoming market-moving events with our customisable economic calendar. You can add text to any line you draw on your chart and manage its color, orientation, and font size from one tab.

cup and handle chart

Knowing how 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. The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. It was developed by William O’Neil and introduced in his 1988 book, How to Make Money in Stocks.

Reversal Days

A cup-and-handle pattern is the name of a chart pattern used intechnical analysis that describes a bullish continuation trendin the price of a security, typically a stock. Traders sometimes use this pattern as a signal about when to buy the stock. As with all forms of technical analysis, this pattern essentially tracks investor behavior, not the underlying strength or weakness of a company’s business. A Cup and Handle can be used as an entry pattern for the continuation of an established bullish trend.

When not managing his personal portfolio or writing for TradeVeda, Navdeep loves to go outdoors on long hikes. 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 handle should not be more than half the depth of the cup.

  • The pattern begins after a well-liked stock rallies to a new high following a positive fundamental development.
  • That chapter gives a complete review of the chart pattern, compared to what is described below.
  • When you confirm the pattern, the price is likely to break the channel of the handle, initiating a bullish move.
  • Instead of a ‘u’ shape, it forms an ‘n’ shape, with the handle bending slightly upwards on the chart.
  • Traders may experience excess slippage and enter a false breakout using an aggressive entry.

There can be false signals or “False Cups and Handles” that give misleading information to traders. 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. Typically, the time it takes for the construction of a handle to complete is less than that needed for the construction of the Cup. With the Breakout Trading Strategy, it is advisable to enter a trade only after the construction of the handle is complete.

Drawing The Cup And Handle

Cup and handle patterns are also traded in the forex market, especially by day traders​​. When intraday trading, cup and handles tend to perform better during active times of a specific currency pair. When the forex markets are not open, the pair tends to be quieter, which means less movement, and it also means that intraday cup and handle patterns will not form as strongly. This is because there is not sufficient momentum to fuel a breakout and bullish trend. The cup and handle chart pattern does have a few limitations. Sometimes it forms within a few days, but it can take up to a year for the pattern to fully form.

What Is The Cup And Handle Pattern?

A cup and handle formation is considered significant when it follows an increasing price trend, ideally one that is only a few months old. The older the increase trend, the less likely it is that the cup and handle will be an accurate indicator. The trade volume should decrease along with the price during the cup and should increase rapidly near the end of the handle when the price begins to rise. What if I told you that taking the depth of the cup and adding it to the breakout value is the wrong way to set your price target. Every book and blog you can find on the web will say to just sell once this one-to-one ratio is achieved.

If the pattern is bullish, take the two tops of the cup and stretch a curved line downwards until the rounded part reaches the low of the pattern. Then take the right side of the cup and draw the shape of the bearish handle. After the price breaks Hedge the handle downwards, we see the creation of a new bearish move. When you confirm the pattern, the price is likely to break the channel of the handle, initiating a bullish move. The first target equals the size of the channel during the handle.

Bearish Cup And Handle Trading Example

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. You could hold the trade as long as the price action is located above the yellow bullish trend line.

He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines. The following chart, courtesy of StockCharts.com, illustrates the pattern. Forex trading is not the line of work you want to be in if you’re a perfectionist.

The examples below will help clear out any questions you may have related to trading the Cup and Handle pattern in Forex. 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 Credit default swap the blue lines on the graph. Then comes the handle, which is expressed by a bearish price move. In many cases, the handle is locked within a small bearish channel on the chart. So far, in this article, we have only highlighted when the cup and handle produced stellar results.

Author: Korrena Bailie