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The buy point occurs when the asset breaks out or moves upward through the old point of resistance (right side of the cup). For the lowest-risk entry point, set a buy stop for entry above the high of the handle. Early entries can provide you with a lower buy price, but reduce your share size to compensate for slightly higher risk. 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). But don’t worry, we’ve prepared an easy 10-step checklist to help you identify a valid cup and handle pattern.
Each retracement returns to a flat line of resistance, giving the pattern the appearance of a cup and handle. Both patterns offer traders valuable insights into potential breakouts, but their implications for market direction are inversely related. It’s important to remember to look at the chart pattern over a longer-term time frame, such as daily, weekly, and monthly charts, in order to identify the pattern correctly. Additionally, when you identify the pattern, you should wait for the handle to form completely before entering a trade. As the cup is completed, a trading range develops on the right-hand side and the handle is formed.
Handle
There are many to analyze the price expectations of a high beta asset, like cryptocurrency and stocks. While reading through the asset fundamentals is a good strategy, technical analysis works best for those interested in short- and mid-term price projections. Chart indicators and patterns make it harder for newbies to make sense of the market. And while some patterns can be hard to decode, this guide focuses on the cup and handle pattern — a bullish sign with excellent credibility and reliability.
A general estimate of a https://www.bigshotrading.info/blog/shorting-a-stock/ target is the height of the cup and the height of the handle’s breakout point. While there isn’t an exact success rate for the cup and handle pattern, it is generally considered to be on of the most reliable chart patterns. In other words, it has a higher success rate compared to most others. From my experience, cup and handle patterns work on most time frames. Personally, however, I like to see them forming over 2-6 months, because it gives me the medium-term signals I like to trade.
Is the cup and handle a continuation pattern?
Like every other trade, you need to know where the stop-loss should be in case things go south. If you have a conservative approach towards trading, consider placing the stop-loss below the lower trendline of the cup’s handle. And if you are willing to take the risk in a more volatile space, you can place the same below the cup’s bottom. The cup Cup and Handle Pattern has two sides — the left represents the initial price decline, and the right represents the subsequent price recovery. For the sides to adhere to the cup and handle physiology, they should be relatively symmetrical. The sides of the cup should converge to form a “U” or a spread-out “V.” Do note that a sharp “V” isn’t what would make sense.
If a Cup and Handle forms and is confirmed, the price should increase sharply in short- or medium-term. However, pro traders can rely on Bollinger Bands and standard deviation to assess the volatility and breakout possibilities pertaining to a specific chart. Even though there is no guaranteed way to avoid false breakouts, you can focus on complementary indicators, clear price breaks, and price action monitoring to lower risk.
False pattern “Cup with Handle” on the daily chart of GBP/JPY
A subsequent breakout from the handle’s trading range signals a continuation of the prior advance. Another issue has to do with the depth of the cup part of the formation. Sometimes a shallower cup can be a signal, while other times a deep cup can produce a false signal.
What does cup and handle pattern indicate?
The cup and handle pattern is a bullish pattern, meaning once the pattern is over there are chances for the stock price to increase. The cup and handle pattern can take weeks or months to form. Traders use this indicator to find opportunities to buy securities with the expectation that their price will increase.
At its lowest point, stock A retraces its previous gains and reaches a price of Rs.85. After a few weeks, the stock is able to breach its resistance level and breakout to a new high of Rs.105. For instance, a perfect cup pattern has equal highs on both ends (although this does not always hold). An important thing to remember is that the handle forms on the right side of the cup.