Cup And Handle Chart Pattern

A version of this column was first published in the July 9, 2010, edition of IBD. Please follow Saito-Chung on Twitter at both @SaitoChung and @IBD_DChung for more on growth stocks, charts, breakouts, sell signals, and financial markets. The daily and weekly charts at both Investors.com and MarketSmith make heavy turnover easy to spot. Simply compare the day or week’s volume with the moving average line drawn across the volume bars. An Investors.com chart will also tell you in real time how volume is running in comparison with typical level at that time of the trading session. The cup with handle is to serious investors in growth stocks what the single is to a baseball fan.

The https://business-oppurtunities.com/ volume should decrease along with the price during the cup and should increase rapidly near the end of the handle when the price begins to rise. William O’Neil initially recognized this popular stock chart pattern in 1988. To identify the cup and handle formation O’Neil claims the handle should extend no longer than one-fifth to one-quarter the length of the cup. The handle will remain close to the prior highs, which will squeeze out the short-sellers and cause new buyers to enter the market. Another related technical analysis indicator to keep in mind is an inverted cup and handle pattern. Some traders consider that pattern a harbinger of a downtrend in the asset’s price that helps identifying selling opportunities.

Also consider that the 3 killer ways to ignite your affiliate commissions may have started later in the day. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. If a Cup and Handle forms and is confirmed, the price should increase sharply in short- or medium-term. An “inverted cup and handle” is a bearish pattern, triggering a sell signal. The cup can be spread out from 1 to 6 months, occasionally longer.

She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

How do you scan for a cup and handle pattern?

It is a bullish continuation pattern which means that it is usually indicative of an increase in price once the pattern is complete. The cup and handle pattern was made popular by William O’Neil, which now has expanded into all sorts of trading scenarios. Traders have come to know the cup and handle as a bullish continuation pattern that is a highly accurate predictor of sizable breakouts. To learn more about stock chart patterns and how to take advantage of technical analysis to the fullest, be sure to check out our entire library of predictable chart patterns. These include comprehensive descriptions and images so that you can recognize important chart patterns scenarios and become a better trader.

If there is no handle, then the cup itself must stretch a minimum six weeks. You need to know if that cup with handle is as it should be, or if it has flaws. 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. Click the ‘Open account’button on our website and proceed to the Personal Area. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading.

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. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism.

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. You’ve identified a cup and handle pattern, but before you jump into the trade, you must wait for a handle to form completely. The handle often takes the form of a sideways or descending channel or a triangle pattern. When the price breaks out of the handle, the pattern is considered complete, and the price is expected to rise.

It creates a U-shape or the “cup” in the “cup and handle.” The price then moves sideways or drifts downward within a small price range, forming the handle. A cup and handle formation is considered significant when it follows an increasing price trend, ideally one that is only a few months old. The older the increase trend, the less likely it is that the cup and handle will be an accurate indicator.

How to Trade the Cup and Handle Chart Pattern

Handles are relevant to all financial markets, but mean different things depending on the asset. When it comes to trading, the term “handle” has two meanings, depending on which market you are… Determine significant support and resistance levels with the help of pivot points.

Basing refers to a consolidation in the price of a security, usually after a downtrend, before it begins its bullish phase. Get Started Learn how you can make more money with IBD’s investing tools, top-performing stock lists, and educational content. For the weekly chart, the moving-average line traces 10 weeks’ worth of turnover.

The target with the cup and handle pattern is the height of the cup added to the breakout point of the handle. Generally, these patterns are bullish signals extending an uptrend. Like all technical indicators, the cup and handle should be used in concert with other signals and indicators before making a trading decision. Specifically, with the cup and handle, certain limitations have been identified by practitioners.

Your Stop Loss needs to be set right under this resistance trend line. On the charts it looks like an upside down cup with the price of an asset on a downward trajectory moving up, stabilizing and then moving down again, followed by a handle pointing upwards. Most of the same general rules, such as the handle not exceeding 1/3rd of the cup, still apply. The price of the asset is expected to drop after the pattern formation is complete. A V-bottom, where the price drops and then sharply rallies, may also form a cup. Some traders like these types of cups, while others avoid them.

How to Trade the Cup and Handle Pattern

A cup and handle pattern occurs when the underlying asset forms a chart that resembles a cup in the shape of a U, and a handle represented by a slight downward trend after the cup. If the trend is up and the cup and handle form 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.

• Place a stop buy order slightly above the upper trend line of the handle.
• Instead of a “u” shape, it forms an “n” shape with the ascending handle.
• In this case, a trader should set the Stop Loss order slightly below the handle’s trendline.

This will avoid jumping into a cup and handle pattern too early by entering a false breakout. For traders who want to add a little more certainty to their trade, they should wait for the price to close above the upper trendline of the handle. A Cup and Handle price pattern is a technical chart setup that resembles a cup with a handle. The cup has a “u” shape, and the handle is a slight downward correction. Typically, the “cup and handle” is a bullish pattern and can be considered a continuation and reversal formation.

This drop, or “handle” is meant to signal a buying opportunity to go long on a security. When this part of the price formation is over, the security may reverse course and reach new highs. Typically, cup and handle patterns fall between seven weeks to over a year. The Cup and Handle pattern is a bullish continuation or reversal price formation, often used to identify buying opportunities. To determine the cup and handle, follow price movements on a chart and look for the “u” shape and the downward handle.

Entering a Cup and Handle Trade

Check the Stock Market Today column to spot changes in market trend and track the best stocks to buy and… What should you do if volume on breakout day is much lighter than usual? Light volume in the market in general may also be a factor.

Cup and Handle Pattern: How to Trade and Target with an Example

A Cup and Handle is a chart pattern where the price movement of an asset resembles a “cup” followed by a downward trending price pattern. In addition to the price levels, some traders also look at trade volume in the asset before entering a trade after a cup and handle pattern. Higher volume indicated that more investors are buying that asset, and higher demand could lead to higher prices in the near future. There are several ways to approach trading the cup and handle, but the most basic is to look for entering a long position. The image below depicts a classic cup and handle formation.

For example, if a cup forms between $99 and $100, the handle should form between $100 and $99.50, ideally between $100 and $99.65. If the handle dives too deep and erases most of the gains of the cup, you should avoid trading the pattern. A doji is a trading session where a security’s open and close prices are virtually equal. If a cup and handle forms and it is confirmed, the price should see a sharp increase in the short- to medium-term.

There are several ways to approach trading the cup and handle. You need to enter a buy trade on the breakout of the handle’s resistance trend line. In this case, a trader should set the Stop Loss order slightly below the handle’s trendline. A profit target will be at the resistance trend line, connecting two highs of the cup. There isn’t a stock scanner setting you can use to find a cup and handle pattern, but the pattern is easy to recognize visually. If you set your stock scanner to meet your other trading needs, then you can flip through the results until you find a chart that looks like a cup and handle.

It’s the starting point for scoring runs and winning the investing game. A breakout from the handle’s trading range signals a continuation of the previous uptrend. As the cup is completed, the price trades sideways, and a trading range is established on the right-hand side and the handle is formed. Consider a scenario where a price has recently reached a high after significant momentum but has since corrected. At this point, an investor may purchase the asset, anticipating it will bounce back to previous levels. The price then rebounds, testing the previous high resistance levels, after which it falls into a sideways trend.