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Cup And Handle Pattern Rules

Montag, Januar 17, 2022

identify the pattern

The simplest way to trade the Cup and Handle pattern is entering a long trade at the resistance breakout, drawn according to the Cup’s highs after the Handle has been formed. A stop loss is put at the low of one of the previous corrections, target profits have been described above. However, inside the Cup, there may be the same pattern but a smaller one. In this case, one may enter a buy trade at the right-sided high of the smaller cup. An important feature is the trading volume that should be growing in the area of the Cup’s bottom. It will prove that big sellers are going to defend their long positions.

cup and handle pattern rules

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  • In the course of the first Introductory stage, a reversal pattern forms.
  • Pullback not too steep – If in an uptrend, the bottom of the cup should be no more than 35% below the high.
  • Here, you should wait for the price to retest the now-support level and place a bullish trade.
  • Our team at Trading Strategy Guides is working hard to develop the most comprehensive guide on different chart pattern strategies.

Remember that you should always use your knowledge and risk appetite to decide if you are going to trade based on ‘buy’ or ‘sell’ signals. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. Customers who want to use their accounts for day trading must obtain the broker-dealer’s prior approval.

The daily and weekly charts at both Investors.com and MarketSmith make heavy turnover easy to spot. Simply compare the day or week’s volume with the moving average line drawn across the volume bars. An Investors.com chart will also tell you in real time how volume is running in comparison with typical level at that time of the trading session. The handle alone needs at least five days to form, but it could go on for weeks. Make sure it doesn’t exceed the cup portion in time or size of decline.

This article will cover the basics of the cup and handle pattern and introduce the key points to consider when trading the pattern. Another related technical analysis indicator to keep in mind is an inverted cup and handle pattern. Some traders consider that pattern a harbinger of a downtrend in the asset’s price that helps identifying selling opportunities.

Index Volume

As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle’s trading range signals a continuation of the prior advance. The formation resembles a teacup with a handle where the Cup is in the shape of a „U“, followed by a short pullback and the trend restoration, the Handle.


Cup and handle patterns work on all timeframes from hourly, intraday, weekly, and even monthly charts. Pipbear.com is a blog website dedicated to financial markets and online trading. Please note that trading, especially margin trading contains high risks of losing a deposit. These products may not be suitable for everyone and you should ensure that you understand the risks involved. The breakout propels the stock upwards as buying to get long get more expensive because no one wants to give up their long positions because the majority of holders are profitable. The best location for stop loss is below the rounded bottom, this will give you a 1 to 1 risk to reward ratio.

Cup with Handle

Now, let’s see how you can effectively trade with the Cup and Handle trading strategy and how to make some profits. It’s important to remember that the handle section of a Cup and Handle pattern should resemble a very narrow price range. It can be contained inside two parallel lines, or it can take the shape of a smaller rounded bottom. So, the first Cup and Handle rule is that you need to have a previous trend. This article is going to teach you everything you ever need to know to be successful with the cup and handle pattern. You could also place an order above or below the handle to buy or sell when the asset reaches a more favourable price.

trend line connecting

Renewed uptrend — the asset price recovers, climbing slightly past its original fall point before facing a short-lived resistance, causing a slight downturn just below the new high price. The Big Tech share basket chart provides an example of this. Prior to the decline that started the cup and handle pattern, the price had advanced about 30% over several months. The upward momentum carried through following the cup and handle. We’re breaking down the Cup and Handle trading strategy into several steps. The first step is to identify an uptrend and a rounded retracement into that bullish trend.

Advantages and Disadvantages of The Cup and Handle Pattern

As the name suggests, the chart pattern is shaped like a teacup with a dainty handle when looked at closely. The price of the MARA is forming a potential inverted cup and handle pattern. First of all, the cup and handle is the trend continuation pattern only.

This is useful when trading both the cup and handle and the inverted cup and handle, because you can speculate on upward or downward price movements. Even when a cup and handle pattern appears to have definitively formed, there is no guarantee that the handle will end in a breakout as expected. Therefore, it is extremely important to place stop losses to protect an investment placed on the handle’s downtrend. Set the stop loss just below the lowest point on the handle, but no lower than half the depth of the cup since the handle should remain above this level. Ideally, the stop loss should be within the upper third of the cup since strong handles will not drop below this point. Another consideration when evaluating a cup and handle pattern is trading volume.

The Cup and Handle pattern is a bullish continuation or reversal price formation, often used to identify buying opportunities. To determine the cup and handle, follow price movements on a chart and look for the „u“ shape and the downward handle. Some rules will help you find a valid Cup and Handle pattern relating to its length, depth, and the underlying asset’s liquidity. An inverted “cup and handle” is used to identify selling opportunities, which is a sign of an upcoming bearish movement. This pattern moves in the opposite direction to the cup and handle, forming an „n“ shape and an upward handle. The inverted cup and handle pattern consists of an inverted cup and a handle.

A trailing stop-lossmay also be used to get out of a https://forex-trend.net/ that moves close to the target but then starts to drop again. If the stop-loss is below the halfway point of the cup, avoid the trade. Ideally, it should be in the upper third of the cup pattern. 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.

Cup with Handle: Important Bull Market Results

An order allows you to open a position at a price you choose, rather than the one currently being quoted. The sad thing is that the pattern was sound, but the profit target literally looks like you are recreating shelves in my kitchen. It just doesn’t make sense to me to set your targets this way. One point of clarification, you should not worry yourself trying to come up with exact measurements for your cup and handle pattern. This will only lead to a search for a needle in a haystack, which is a waste of time. Rather than trying to define what a cup and handle pattern is in words, it’s best to use a picture to illustrate the pattern.

The https://en.forexbrokerslist.site/ usually takes the form of a descending triangle or sideways channel. When the handle forms, traders typically monitor the price to see if it breaks above resistance. If it does, it means the price is expected to rise, which makes it a good time to enter the trade. The Cup and Handle pattern is a technical indicator that traders use to identify whether the price of a traded security will continue its upward movement.

A version of this column was first published in the July 9, 2010, edition of IBD. Please follow Saito-Chung on Twitter at both @SaitoChung and @IBD_DChung for more on growth stocks, charts, breakouts, sell signals, and financial markets. Volume should increase on the breakout, signaling increased investor interest and confidence in the stock.

Sometimes, the left side of the cup is a different height than the right. Use the smaller height and add it to the breakout point for a conservative target. You could also use the larger height for an aggressive target.

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