Cup And Handle Chart Patterns

price movement

Or, the stock must show a minimum 20% increase from a prior breakout. The inverted “cup and handle” is the opposite of the regular cup and handle. Instead of a “u” shape, it forms an “n” shape with the ascending handle. However, trading approaches used for inverted “cup and handle” are the same. The buy point occurs when the stock breaks out or moves upward through the old point of resistance . The security returns to resistance for the second time and breaks out, yielding a measured move target equal to the depth of the cup.

handle breakout

The‘s formation may be as short as seven weeks or as long as 65 weeks. The main reason for this is that bear markets are characterized by high levels of fear and uncertainty and investors tend to sell on any break-outs or rallies. This selling pressure creates a hard environment to gain traction after a cup and handle breaks out to the upside. One common mistake that traders make when trying to trade the cup and handle pattern is buying too early before the handle has formed.


Once closes below the 200 EMA I will be looking for a short position. Around £5.40 Measured move will be my first profit target at £4.32 which is also an historical support level. The first example shows a shallow cup and handle pattern developing over the course of approximately two to three months. The cup features a gentle pullback after a strong bullish movement and the right side of the cup reaches the same price level as the left side of the cup. The false breakout in the handle on August 13 occurs on low trading volume, demonstrating the importance of using trading volume as a method of confirming the breakout.

The problem with the setup is that everyone uses the same approach when determining entry and exit for the formation. When you are day trading cup and handle patterns, you must realize that not all handles are created equally. The funny thing about the formation is that while the handle is the smallest portion of the pattern, it is actually the most important.

The chart below shows how a cup and handle pattern look like. Thanks man , one of the best articles on trading the cupnhandle pattern. If you guys wanna see some cups getting completed right now, go open the bitcoin ethereum and xrp charts. No one can explain how to trade cup and handle pattern better that way you have explained in this short article. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. 75% of retail client accounts lose money when trading CFDs, with this investment provider.

Inverted/reverse cup and handle patterns

If the stock is unable to close above the cloud, then the bears are in control and longs should step aside. Let’s walk through a few chart examples to illustrate the trading strategy. The reasoning behind this explanation is that the breakout move requires strong volume after the necessary quiet period to form both the cup and the handle. You can’t find a more quite time to trade the markets than late afternoon when everyone is off at lunch or have finished trading for the day. Above is an example of two cup and handles that formed in the Big Tech share basket on our Next Generation trading platform. The pattern on the left is more complex as the cup pattern is wavy and harder to identify.

This rectangular handle held well above the 38.6% retracement level, keeping bulls in charge, ahead of a breakout that exceeded the measured move target and printed a 14-year high. As a general rule, cup and handle patterns are bullish price formations. The founder of the term, William O’Neil, identified four primary stages of this technical trading pattern. First, approximately one to three months before the “cup” pattern begins, a security will reach a new high in an uptrend.

technical indicator

The first is that it can take some time for the pattern to fully form, which can lead to late decisions. The cup and handle is one of the easiest chart patterns to identify, because we all can recognize a cup. Some of us may not be rocket scientists; however, everyone I know has used a cup in their lifetime.

What does a Cup and Handle pattern indicate?

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. We recommend that you combine it with other tools like Fibonacci and indicators like moving averages.

  • Second, the cup section should look like a U even from a distance.
  • To simply apply the same price target logic to every stock formation in the market sounds a bit off, when you think about it.
  • Readers shall be fully liable/responsible for any decision taken on the basis of this article.
  • It ground sideways in a broadening formation that looks nothing like the classic handle for another three weeks and broke out.
  • The Keltner Channel or KC is a technical indicator that consists of volatility-based bands set above and below a moving average.

The U-shape also demonstrates that there is strong support at the base of the cup and the cup depth should retrace less than 1/3 of the advance prior to the consolidation pullback. The cup can develop over a period of one to six months on daily charts, or even longer on weekly charts. Ideally, the highs on the left and right side of the cup are at roughly the same price level, corresponding to a single resistance level. The 60-minute cup and handle pattern offers an excellent timing tool when looking to buy a larger-scale trend that doesn’t show a low-risk entry price on the daily or weekly chart. Akamai Technologies, Inc. consolidated below $62 after pulling back to major support at the 200-day exponential moving average . It returned to resistance in early February of 2015 and dropped into a small rectangle pattern with support near $60.50.

Scanning For Trade Ideas

This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk.

Here, it hits the resistance level, and the handle starts forming. It may resemble a flag or a pennant with a slightly downward slope, or it may be a short pullback from the preceding top. 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. Imagine that stock A has witnessed an upward price trend from Rs.75 to Rs.90, completing the left edge of the cup. Due to selling pressure, the price of stock A falls to Rs.80, reversing the prior uptrend.

Most brokers measure the length between the h point of the resistance and the lowest level of the cup. They then apply the same length to add their price target. For more information on this pattern, readEncyclopedia of Chart Patterns Second Edition, pictured on the right, pages 164 to 178. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book. In my opinion, the cup and handle pattern can be both a continuation pattern and a reversal pattern.

How Does Cup and Handle Pattern Work?

The cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over 1-4 weeks. If you’re day trading, and the target is not reached by the end of the day, close the position before the market closes for the day. By having the handle and stop-loss in the upper third of the cup, the stop-loss stays closer to the entry point, which helps improve the risk-reward ratio of the trade. The stop-loss represents the risk portion of the trade, while the target represents the reward portion. Since the handle must occur within the upper half of the cup, a properly placed stop-loss should not end up in the lower half of the cup formation.

The pattern may take anywhere between seven to sixty-five weeks to form. The second example is another classic cup and handle pattern that develops over three to four months, with the handle forming over approximately two weeks. The cup retraces slightly more than half the preceding movement, which is relatively mature prior to the cup and handle pattern’s formation. The right side of the handle rises higher than the left and the pattern slightly overestimates the extent of the bullish continuation after the breakout. The pattern forms during as a result of consolidation a bullish movement and indicates a continuation of that bullish trend after its completion. A Cup and Handle price pattern is a technical chart setup that resembles a cup with a handle.

The High Tight Flag Chart Pattern

Now, A cup and handle invalidation would be if you see a large sell-off from Resistance, as it tells you the market is not ready to head higher. If you’re not ready to start straight away, you can practise your trades on a risk-free demo account. Hartalega As Topglove And supermx possible forming a triangle BUT a variant as cup and handle or VCP pattern. The Keltner Channel or KC is a technical indicator that consists of volatility-based bands set above and below a moving average. Be aware that the handle itself, which must stretch for a minimum five trading sessions, can morph into a base of its own in certain cases.

In the cup and handle pattern, as the stock price moves upwards, there is selling pressure among investors who want to consolidate their profits at new highs. As a result, there is a downward spiral in the price movement and a price correction. Bulls or buyers start accumulating the stock for long positions as speculators leave their positions. There is an increase in volume at this stage as the U-shaped bottom gives way to an uptrend, creating the second edge of the cup. It signifies a bearish continuation pattern with a downward breakout in the price movement.

Now, that’s fine if the price made a strong momentum move into Resistance and it gets rejected strongly. Stay on top of upcoming market-moving events with our customisable economic calendar. Learn about crypto in a fun and easy-to-understand format. From basic trading terms to trading jargon, you can find the explanation for a long list of trading terms here.

If you look at the regular cup and handle pattern, there is a distinct ‘u’ shape and downward handle, which is followed by a bullish continuation. This means the inverted cup and handle is the opposite of the regular cup and handle. Instead of a ‘u’ shape, it forms an ‘n’ shape, with the handle bending slightly upwards on the chart. The breakout should occur on high trading volume and continue above the trendline drawn from the left to the right side of the cup to provide confirmation. Cup and handle patterns typically are seen to occur on a daily chart after a strong trend has progressed for one or more months.