A proper classic cup and handle pattern needs time to go through the following specificmass psychological phases. However, the good cup and handle patterns are still out there to be found. But they are much more rare compared to the faulty and obvious ones.

During the stock’s actual breakout, you want to see a new wave of buyers coming in at a torrid pace, not a trickling one. 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. A trailing stop-loss may also be used to get out of a cup and handle reversal position that moves close to the target but then starts to drop again. 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. The one-level, or 100%, represents a conservative price target, and 1.618, or 162%, is a very aggressive target.

The chart then swings down in price as stop losses and trailing stop signals are triggered for exits. I’m extremely determined to create a millionaire trader out of one my students and hopefully it will be you. The Complete Penny Stock Course.” It answers most of the questions new traders ask me. Breakout just because so many people believe it will happen.

What You Need To Understand About The Cup And Handle Chart Pattern

Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. Playing around with possible moonshot scenarios, I initially thought the cup walls and handle had formed earlier this Spring… But recent price action has me thinking that it’s just getting started.

Sometimes, the beginning of the decrease and the end of the increase could diverge in terms of the level they are supposed to be located at. However, a small discrepancy between the tops of the two trends is admissible. The Cup and Handle pattern is a chart figure, which has a bullish potential. The pattern could appear after a price increase or a price decrease.

The handle should not dip below about fifty percent of the depth of the cup. Next, we need to figure out an entry technique, which brings us to the next step of the Cup and Handle trading strategy. Now we move to the second component of the Cup and Handle pattern and the second step of the Cup and Handle trading strategy. The strength and the longevity of the prevailing trend is important as it will determine the success of the trade.

New Ways To Trade The Cup And Handle Pattern

That’s not a problem; it’s often a stock’s way of offering a buy point that’s clearer or lower than that suggested by the larger pattern. The handle often takes the form of a sideways or descending channel or a triangle. Buy when the price breaks above the top of the channel or triangle. When the price moves out of the handle, the pattern is considered complete, and the price is expected to rise.

I’ve just come across your work – since last week’s online trading summit – and it’s outstanding. If you’re entering on the 4-hour timeframe, then a factor of 6 would be, 4 multiply by 6, which gives you 24 hours, and that’s the daily timeframe. If you’re short, you want to exit your trades before swing low or Support. And usually, you exit your trades just before the opposing pressure steps in.

Timespans Of An Average Cup And Handle Pattern

No amount of analysis can make up for years of experience combined with advanced training. The rally indicated by the cup shape shows re-investment in an asset that had become undervalued. Secondly, the price of the asset will stay at this stable point for a period of time. Here’s how you can scan for the best undervalued stocks every day with Scanz. Check out this step-by-step guide to learn how to scan for the best momentum stocks every day with Scanz.

They then apply the same length to add their price target. Whenever you are looking at chart patterns and setups, try to think of things creatively. Try applying contradictory methodologies forex trading or trading indicators to see if you cannot unearth an edge. Remember in this line of work, you just need to be a little bit better than the next trader to make a living.

A subsequent breakout from the handle’s trading range signals a continuation of the prior advance. The cup and handle (C&H) pattern was an important part of the CAN SLIM trading strategy. In cup and handles, as with other breakout setups, the price might make several false breaks and possibly reverse for a while. If the stops are too close, the trade can close on a loss, even if the breakout eventually goes in the right direction. Enter a pending buy order to activate at a price just above the main resistance line. Set the order to expire if the price does not reach the entry level within a time limit.

How To Trade The Cup

The cup and handle is a very distinctive pattern that can appear on any financial chart. The standard interpretation of the cup and handle is that it is bullish consolidation/continuation. Cup and handles are relatively common and can appear at any timeframe. 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.

In the above chart example, you can see how the stock made a nice round cup and had a strong handle, before continuing higher. The one thing to point out is that on the breakout, the stock used a lot of gas just to work its way through the cloud. By the time the stock closed outside of the Ichimoku cloud, it was apparent that the stock’s tank was empty. This algorithm works extremely well when backtesting using forex and stock data provided by Finnhub stock api. The accuracy rate for cup and handle pattern for forex and stock on Daily timeframe are 65% and 68% respectively. We automated this backtesting process using the pattern recognition API ofHarmonicPattern.com harmonic scanner.

How To Use Moving Average And Ride Big Trends

It shows by example how to scalp trends, retracements and candle patterns as well as how to manage risk. It shows how to avoid the mistakes that many new scalp traders fall into. Now that we learned what a Cup and Handle pattern is, it’s time to look beyond the price action. Then understand the psychology behind this profitable trading pattern. This can be the same when reading the price action for the Cup and Handle formation.

It returned to resistance in early February of 2015 and dropped into a small rectangle pattern with support near $60.50. 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. 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.

Cup And Handle Definition

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. However, a share price declines it can mean many things, not just the formation of a handle. There’s no good way to distinguish falling asset prices from the first stage of a stock which will make an eventual rally.

The second run at new highs usually works as the majority of sellers have been worked through and the stock breaks out to new highs. A buy signal is triggered when prices surpass the high of the right side of the cup. 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.

After this short-term consolidation the stock recovers its lost value and resumes its previous growth. 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 pattern could appear after a price increase or a price decrease.
• Thanks to the dual headwinds of sky-high inflation and the threat of rising interest rates, biopharmaceutical stocks appear poised for a turbulent 2022.
• We mentioned above the need for constructive price/volume action while the stock is building the right side of its cup.
• When we get this indication, we can buy or sell the Forex pair depending on the potential of the pattern.

Buyers are taking a wait and see approach, but there is not enough selling volume to push the price to a deeper correction. Make sure you also don’t miss our amazing Triple Top Chart Pattern Trading Strategy which is the ultimate reversal trading strategy that you can have in your trading arsenal. The Cup and Handle pattern target maximizes the potential profit and it gives us the chance to capture the entire trend. The next logical thing we need to establish for the Cup and Handle trading strategy is where to take profits. Second buy entry on the breakout of the initial peak from where we started drawing the cup. This means it could be the start of a NEW uptrend and the last thing you want to do is cut your profit short.

The handle should also show a downward slope along at least a portion of its price lows, not an upward one. The handle should form in the upper part of the entire pattern. Greed, fear, hope, despair and other emotions drive stock prices. 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.

Most are three to six months long, but can be as little as seven weeks or as long as a year or more. Look for an inverted ‘U’ shape and volume that dries up near the cup’s high. Volume that dries up at the top suggests funds lost interest in buying. And inverted U-shaped bases are more likely to work than inverted V-shapes. 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 trade should be closed if the price action breaks the upper barrier. You can even adjust your stop loss order right above the upper level of the zone. 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.

Because the stock is surging, investors feel more comfortable paying higher prices for it. Unfortunately, the stock price gets to a point where its story fails to continue to convert believers. When the stock hits this point, it begins to drift lower because Day trading the stock’s new believers are now outnumbered by those who are looking to sell and lock-in their profits. The cup should be more U-shaped than V-shaped, as a gentle pullback from the high is more indicative of consolidation than a sharp reversal.

Some students come into the Trading Challenge with preconceived ideas about patterns. Sometimes that’s a bad thing because my top students and I trade penny stocks based on volatility. The cup-and-handle pattern is a stock trading pattern in which a share will lose value, only to regain it, briefly stabilize or even slightly decline before resuming growth. It can be used to spot shares potentially poised for growth if correctly identified and also caught in time.

The ideal profit target for the Cup and Handle trading strategy would be equal to the same distance in price as measured from the initial Cup peak to the bottom of the Cup. This gradual and slow range is what will set the stage for the bullish trend to resume. People will think this is a double top which will trap some weak sellers when we finally break upwards. At TSG, we believe the Cup and Handle is one of the most authentic continuation patterns. Unlike the bullish flag pattern, which is a continuation pattern, the Cup and Handle pattern takes a lot of time to develop. No one can explain how to trade cup and handle pattern better that way you have explained in this short article.

Author: Korrena Bailie