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. Traditionally, the cup has a pause, or stabilizing period, at the bottom of the cup, where the price moves sideways or forms a rounded bottom. It shows the price found a support level and couldn’t drop below it.

First, many online sources give precise definitions of the cup and handle. The potential profit is twice the risk because the risk is the size of the handle. Mint Global provides information about, or links to websites of, third party providers of research, tools and information that may be of interest or use to the reader.

If you know how it behaves and how to use it correctly, you can earn large profits in a relatively short span of time. This pattern is trying to capture a stock as it breaks out of its handle and starts an uptrend due to accumulation from money managers. The first-time buyers at new highs near the resistance price level above the Finance cup will be the new selling pressure as the second break out of the pattern is attempted. Also, remember smart trading requires more than just knowing a pattern. I’ve given you hints in this post about how to trade the cup and handle pattern. But if I gave you only “buy here, sell here” I’d be doing you a great disservice.

Volume Breakout Indicator

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.

Bulls then start coming in and take the price to the previous high.Bears come in again and push the price lower. Handles are relevant to all financial markets, but mean different things depending on the asset. We measure the price/volume action in the handle using a proprietary metric called Handle Quality , which is also a component of CQ, mentioned earlier. The handle must form in less time than it takes to form the cup. On most occasions, the handle will form in about 1/5 to 1/3 of the time required to form the cup.

Bearish Cup And Handle Trading Example

The important item to note is that the right side of the cup cut through the Ichimoku cloud and even made an attempt at trying to move beyond the cloud itself. RHI didn’t have enough gas in the tank and fell back into the cloud. Nevertheless, notice how once the handle completed and the stock sky rocketed off, the area around the cloud acted as support prior to the move up. So far, in this article, we have only highlighted when the cup and handle produced stellar results. Well guess what folks, sometimes it’s not always sunny outside. Draw the extension tool from the cup low to the high on the right of the cup, and then connect it down to the handle low.

Here, you should wait for the price to retest the now-support level and place a bullish trade. The cup and handle pattern is called so because of its appearance. When looked at closely, it looks like a cup with a handle. The handle can be a small consolidation or slight pullback. The chart below shows how a cup and handle pattern look like.

Note the large bearish move on the chart following the breakdown. Also notice how the pattern starts with a bullish trend, which gradually reverses. At the end of the reversed bearish move, the price reverses again and starts the creation of a bullish handle. The bullish Cup and Handle pattern is the one we have been discussing so far. It starts with a bearish price move, which gradually reverses. The new bullish move finishes approximately around the top of the prior bearish move.

Learn To Trade

Charles has taught at a number of institutions including Goldman Sachs, Morgan Stanley, Societe Generale, and many more. Both rectangles and price channels appear in virtually all forex charts. We always recommend you to backtest first the pattern and trade it a few times on a demo until you’re comfortable and have a good understanding of what is Cup and Handle pattern. Now that we know what is Cup and Handle, let’s walk through the trading rules of the Cup and Handle trading strategy that can set you apart from the rest of the crowd. Although Cup and Handle chart is supposed to be trustworthy, you shouldn’t rely solely on its help.

The one-level, or 100%, represents a conservative price target, and 1.618, or 162%, is a very aggressive target. 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. 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.

• The technical target for a cup with handle pattern is derived by adding the height of the “cup” portion of the pattern to the eventual breakout from the “handle” portion of the pattern.
• Well guess what folks, sometimes it’s not always sunny outside.
• This drop, or “handle” is meant to signal a buying opportunity to go long on a security.
• As you see, the price action breaks to the lower level of the S/R zone, which indicated that the price will probably continue in the bearish direction.
• If this target is completed, you can then start pursuing the next target.

In the event that a particular student does so, Big Shot reserves the right to prohibit that student from using the Merchant Community Platform permanently. No part of the training program may be transferred to any third party without the prior written approval of Big Shot. It is recommended to read the relationship agreement before using the training program. The cup part of the formation is created when profit taking sets in or the market itself is in a correction and the stock sells off and forms the left side of the cup to the downside. The price may drop slightly, then rally back up, forming another handle or breaking above the initial handle.

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. Commentary and Super profitability opinions expressed are those of the author/speaker and not necessarily those of Mint Global. Mint Global does not guarantee the accuracy of, or endorse, the statements of any third party, including guest speakers or authors of commentary or news articles.

As a result of this behavior, investors generally see the handle as the place in which to buy. A stock’s price will dip while it is in the handle, but in a true cup-and-handle pattern this dip will not endure. It typically represents technical analysis rather than a shift in the stock’s fundamental value.

More cup & handle breakouts this week with $KNOS and $ADOM, too. The more you know about how they think, the smarter you can start to trade. The easiest way to describe it is that it looks like a teacup turned upside down. First things first … This doesn’t fit the “7 to 65 weeks” cup definition I quoted from O’Neil’s book above.

Finding Cup And Handle

Another method for identifying the profit target is to plot a Fibonacci extension. Plot the extension from the base of the cup to the start of the handle, then to the handle’s low. One hundred percent of the extension is considered a conservative price target for cup and handle pattern breakouts, while 162 percent is considered an aggressive price target. The best place to enter a cup and handle pattern to maximize the likelihood of predicting the breakout while minimizing risk is during the handle.

Dont Miss This! Miraculous Holiday Deals On Hot Trading Tech

To improve the odds of the pattern resulting in a real reversal, look for the downside price waves to get smaller heading into the cup and handle. The smaller down waves heading into the cup and handle provide evidence that selling is tapering off, which improves the odds of an upside move if the price breaks above the handle. If the trend is up, and the cup and handle forms in the middle of that trend, the buy signal has the added benefit of the overall trend. In this case, look for a strong trend heading into the cup and handle. For additional confirmation, look for the bottom of the cup to align with a longer-term support level, such as a rising ​trendline or moving average.

As you see, the price reached the first target of the pattern prior to the entry, had you waited for the candle close to enter. Sometime afterwards, cup and handle chart pattern the price action reaches the second target on the chart. You have the option to close your entire position at this second take profit target.

Because the inverted cup and handle is a bearish pattern, the stock would break down out of the handle.Cup and handle patterns break down all the time. With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members.

No testimonial should be considered as a guarantee of future performance or success. GIM is the exclusive route to market in North America and Canada for G Smart, powered by STR’s Kompetently® platform, and STR will continue to develop and enhance its capabilities. Eric ReedEric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports.

It just doesn’t make sense to me to set your targets this way. Any who, as the price approaches the creek or top of resistance, the stock will have a minor pullback, thus creating the handle. Once this pullback or handle is complete, we are off to the races. With forex trading, you don’t own the underlying asset, which means you can go long or short . 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. If the price oscillated up and down a number of times within the handle, a stop-loss might also be placed below the most recent swing low.

Author: John Divine