Cup and Handle Pattern Trading Strategy Guide
It usually occurs when the market reaches a top or bottom and begins to lose momentum. Its concept can be applied across markets which are liquid and across timeframes when the market is liquid as well. If you’re long, you want to exit your trades before the swing high or Resistance. And usually, you exit your trades just before the opposing pressure steps in. Now, you don’t want to put your stop loss at the exact low of the handle because the market could trade into that area of value and reverse higher.
A surge in selling volume indicates that traders are rushing to sell off their positions and the market is dominated by bears. Another indicator that goes well with the cup and handle pattern is the stochastic oscillator (SO), which is a momentum indicator. It uses two moving averages to compare the current price to previous prices. The stochastic indicates the overbought and oversold state of the market and shows how strong the current trend is and how soon a reversal may occur. Combined with the inverted cup pattern with a handle, this indicator can help you quickly determine the current trend and the best entry points into a position.
Depth of the cup
You can do this by identifying the resistance level of the cup and the bottom of the cup and measuring the distance between the two. The cup and handle pattern as a lower failure rate https://www.bigshotrading.info/ when compared to other chart patterns, meaning it is a good indication of what’s to come. Patterns were shorter handles have a higher success rate than patterns with longer handles.
- When intraday trading, cup and handles tend to perform better during active times of a specific currency pair.
- As we have explained in the first method, the most convenient way is to wait for the price to break the cup’s neckline.
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- William Neil, the founder of the cup and handle pattern, suggested that the pattern is made of a saucer (cup) followed by a consolidation (handle).
- This can happen because of waning investor sentiment or insufficient buying pressure.
- Excessive sell volume is present during the breakout, which confirms the bearish bias for the price.
If the Cup and Handle pattern completes successfully, the price should break above the trend established by the “handle” and go on to reach new highs. Let’s look at an example of what the trends in a cup and handle pattern look like. In the securities market, recognising the cup and handle chart can be a fruitful exercise to make gains. The cup 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.
USDCHF Cup and Handle Reversal Pattern Set to Shoot Price Upwards
Unlike the original cup, the inverted cup has a handle going upward. And you still have to be vigilant and watch for contrarian signals to stay safe. If you ignore the importance of trading volume, then you really miss a lot of opportunities to https://www.bigshotrading.info/blog/cup-and-handle-pattern/ make money in the market. The breakout was confirmed when prices broke down from this level. This indicates that the market’s bullish sentiment is starting to fade, as the bulls are no longer strong enough to push the price up significantly.
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Successful cup and handle pattern example trade in the cryptocurrency market
The pattern has distinctive features such as length, proportions, entries, stops and targets. However, keep in mind that the cup and handle pattern does not work all the time. Statistically, the accuracy of the formation of this pattern is about 65% if traded on a daily time frame. The breakout was confirmed when prices broke through that level, accompanied by high trading volume.
What is a failed cup and handle pattern?
A cup and handle pattern failure, also known as a “failed cup and handle pattern”, is when a cup and handle pattern has formed, prices rise and move a little higher above the resistance level of the pattern. However, it fails to continue increasing in price and instead reverses and trends downward.
In the 1st instance, the cup and handle are both rounded domes. In the second instance, however, the cup looks like a pointed mountain while the handle resembles an ascending channel. Optically, this looks like an upside down version of the standard cup and handle pattern. And instead of a slight downdrift, the handle resembles a slight updrift. The inverse, or inverted, cup and handle pattern shares exactly the same logic as the standard cup and handle pattern, but in reverse.
How is Cup-And-Handle Pattern identified?
Or you can consider this a breather taken by the buyers to shake out the weak hands. The handle is a sloping consolidation that should be restricted to the upper half region of the chart. It feels like a breather taken by the buyers before continuing the upmove. And this consolidation is meant to shake out the remaining weak hands before the uptrend resumes with confidence.
- Per the pattern, the bullish sentiment is likely to continue as the sellers will get tired and leave the assets at the counter.
- Secondly, practitioners have found issues with the depth of the cup.
- Other technical analysis tools include indicators, chart patterns, and volume.
- And instead of a slight downdrift, the handle resembles a slight updrift.
- The cup and handle pattern is considered a bullish chart pattern in technical analysis.
2009 is committed to honest, unbiased investing education to help you become an independent investor. We develop high-quality free & premium stock market training courses & have published multiple books. We also thoroughly test and recommend the best investment research software. The handle should not drop into the lower half of the cup, and ideally, it should stay in the upper third. The perfect pattern would have equal highs on both sides of the cup, but in the real world, just like when finding someone to marry, perfect doesn’t exist. For a more in-depth read about double tops and double bottoms, check out our article on divergence trading strategies.