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

cup and handle reversal

This is when the pattern forms an inverted handle inside a trading range. The second run at new lows usually works as the majority of buyers have been worked through and the stock breaks down to new lows. 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. Place a stop buy order slightly above the upper trend line of the handle.

You may not want to completely exit the trade, where the price move is offering more potential to add profit to your trade. Thus, you can watch for price action clues in order to extend the gains from the trade. The take profit targets for the Cup & Handle corresponds to the two targets we mentioned earlier. Your first take profit target should be located on a distance equal to the size of the handle, starting from the breakout point. If this target is completed, you can then start pursuing the next target. The second target is located on a distance equal to the size of the cup, applied again from the moment of the breakout. As we point out earlier, you would prefer to open a trade after confirming the Cup with Handle pattern.

Cup and Handle Pattern

Thank you for reply, entry above the handle is after breakout, where we can entry in pre-break out. This means it could be the start of a NEW uptrend and the last thing you want to do is cut your profit short. 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. “Your stop loss should be placed at a level where if the market reaches it, your trading setup is invalidated”.

cup and handle reversal

It was developed by William O’Neil and introduced in his 1988 book, How to Make Money in Stocks. There are 2 main varieties of this pattern – the cup and handle reversal pattern, and the cup and handle continuation pattern. Inverted cup and handle patterns can be identified by their large crescent shape followed by a less extreme, upward retracement. The entire pattern usually takes within 3 to 6 month to develop. These patterns are meant to serve as being indicative of a bearish reversal.

Cup and handle patterns in forex

Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. The pattern has better odds of playing out as expected if it belongs to a lagging stock in the market with declining sales and earnings growth. The chart then swings down in price as stop losses and trailing stop signals are triggered for exits on many open positions.

  • She has worked in multiple cities covering breaking news, politics, education, and more.
  • The magenta arrows and lines represent the two targets on the chart.
  • The Cup and Handle pattern is a chart figure, which has a bullish potential.
  • The confirmation signal of the figure comes at the moment when the price action breaks the handle downwards.
  • Another issue has to do with the depth of the cup part of the formation.
  • Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.

It seems that Binance Coin has formed a Cup and Handle pattern in the one-hour time frame. After the failure of the pattern handle, we can expect the growth of Binance Coin to at least PRZ. The confirmation of the pattern comes in at the green circle at the moment when the price action moves above the handle. You would typically look to buy the AUD/USD Forex pair when the candle closes above the handle. An additional option is to stay in the trade as long as the price is trending in your favor.

How to trade when you see the cup and handle pattern

The handle often takes the form of a sideways or descending channel or a triangle. You should buy when the price breaks above the channel’s top or triangle.

Huawei’s Erstwhile Revenue Trajectory Shows Reversal Amid US Sanctions – Samsung Electronics Co (OTC:SSNL – Benzinga

Huawei’s Erstwhile Revenue Trajectory Shows Reversal Amid US Sanctions – Samsung Electronics Co (OTC:SSNL.

Posted: Fri, 28 Oct 2022 10:58:06 GMT [source]

There is no ranking of importance for the different patterns. You can start off by mastering 1-2 patterns before moving on to the rest. It’s so rare that this pattern happen and I am a pips trader. For trading, we would look to enter during the pause , when the risk and volatility is low. The bottom of the pullback pattern would be a good place to put your stoploss. The first opportunity would be to enter during the handle phase before the breakout, but if you miss that, they next best chance is to enter on the first pullback after the breakout. In the final stage, where the handle forms, this is where the final battle of the bulls and bears take place.

Spotting, Entering, and Setting Profit Targets on a Cup and Handle Pattern

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 cup and handle reversal the cup pattern is wavy and harder to identify. The pattern on the right is more traditional, with a clear cup shape, followed by a handle breakout to the upside.

cup and handle reversal

Instead of a ‘u’ shape, it forms an ‘n’ shape, with the handle bending slightly upwards on the chart. The inverted cup top is formed when the stock finally runs out of buyers at new high prices and sellers start moving in and bidding the stock down. A reverse cup and handle chart pattern ideally takes place at the end of uptrends when the chart are near all time highs in price. The shape is formed when there’s a price wave down, which is then followed by a stabilization period, followed again by a rally of approximately the same size as the prior trend. This price action is what forms the identifying cup and handle shape.

Now, that’s fine if the price made a strong momentum move into Resistance and it gets rejected strongly. Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner. 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.

  • This would be an advantageous time to sell the USD/CAD Forex pair.
  • Yes, a cup and handle pattern can and will fail from time to time as no chart pattern is accurate 100% of the time.
  • Yes, traders can use a failed cup and handle pattern as a bearish signal to enter into a short trade.
  • After the cup forms and the beginning of a noticeable handle takes shape, begin to monitor trading volume closely.
  • As the handle forms, it is very close to the breakout happening, and this provides a good low-risk opportunity to enter the trade just before the action begins.
  • It starts with a bearish price move, which gradually reverses.

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