New Ways to Trade the Cup and Handle Pattern

Cup and Handle Pattern

While partners may reward the company with commissions for placements in articles, these commissions do not influence the unbiased, honest, and helpful content creation process. Any action taken by the reader based on this information is strictly at their own risk. Do note that all these points, including the entry, profit target, and stop-loss, are based on general guidelines and aren’t absolute.

  • You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion.
  • At this point, an investor may purchase the stock, anticipating that it will bounce back to previous levels.
  • The longer and rounder the bottom, the stronger the signal.
  • Once you spot a chart with a Cup With Handle pattern, it’s best to wait for price to break out of the handle before entering a long position.
  • The buy point from a cup-with-handle base appears at the highest point of the handle, plus 10 cents.
  • Early entries can benefit from tighter stops, such as several percent below the downtrend line or 20-day moving average (depending on the basis of your entry).

Greed, fear, hope, despair and other emotions drive stock prices. Check out TrendSpider’s Strategy Tester to experiment with hundreds of possible trading strategies without taking any risk. Three tries previously before finally breaking out and going parabolic.. A trailing stop-lossmay also be used to get out of a position 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.

Tradeoffs of Cup and Handle Pattern

And when the handle pattern forms, the volume should go even lower before pushing out or surging to validate the price breakout. A stop-loss order saves traders if the price drops, even after a stock forms the cup and handle chart. The stop-loss will sell off the stocks as soon as the price goes down to a specific price set on the handle. For those unfamiliar with what a cup and handle chart looks like, the chart below is an ideal example of a Bitcoin cup and handle continuation pattern. It is also known as the bullish cup and handle pattern, signaling a potential uptrend in prices. While the cup-and-handle pattern has traditionally been used for stock trading, it can also be used in crypto trading.

Cup and Handle Pattern

Simply put, if the cup and handle formation becomes invalidated, it is easy to tell. This is followed by a sideways pullback between the high and low of the cup shape, forming the handle. However, as with any trading pattern, a cup-and-handle pattern does Cup and Handle Pattern not guarantee the stock price will continue on a bullish trajectory, it’s just a trading indicator. A stop-loss order gets a trader out of a trade if the price drops, instead of rallying, after buying a breakout from the cup and handle formation.

The bottom of the cup

As its name implies, there are two parts to the pattern—the cup and the handle. 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.

  • However, if you wait for an upside breakout, the failure rate drops to 10% (not shown in the table above).
  • It feels like an inverted cup with an upward-sloping channel or wedge as the handle.
  • Lastly, illiquidity also restricts the cup and handle from fully forming as trading volume also affects an asset’s price.
  • A “cup and handle” pattern is a specific chart pattern that reveals the market conditions to those that can interpret it.
  • First, we want to write that the cup and handle pattern is also called cup WITH handle pattern.
  • Ideally, the depth — distance from the high to the bottom of the cup — should be less than 50% of the previous price surge made by the asset before the cup and handle formation started.

You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Investopedia does not provide tax, investment, or financial services and advice. Investing involves risk, including the possible loss of principal. Early entries can benefit from tighter stops, such as several percent below the downtrend line or 20-day moving average (depending on the basis of your entry). Not every chart that looks like this is a PROPER cup and handle pattern.

Cup and Handle Pattern: How to Trade and Target with an Example

Most of the same general rules, such as the handle not exceeding 1/3rd of the cup, still apply. The price of the asset is expected to drop after the pattern formation is complete. A good way to validate the strength of a cup and handle formation is by closely examining the price levels related to key moving averages.

In order to prevent a false signal, it’s important to receive confirmation before buying. Use this simple, 10-step checklist below to discover how to identify a cup and handle pattern—the right way. That’s why we designed StocksToTrade to have such incredible, easy-to-customize charts.

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