Cup and handle patterns are also traded in the forex market, especially by day traders​​. When intraday trading, cup and handles tend to perform better during active times of a specific currency pair. When the forex markets are not open, the pair tends to be quieter, which means less movement, and it also means that intraday cup and handle patterns will not form as strongly. This is because there is not sufficient momentum to fuel a breakout and bullish trend. A cup and handle is typically considered a bullish continuation pattern. Once a cup and handle pattern forms, in order to generate a bullish trade signal, the price must break above the top of the handle that has formed. This second pullback is very healthy and normal for a strong stock or a stock that is gaining strength.

• This is used in conjunction with the Stocks Over Coffee Podcast on Technical Education Cup with Handles.
• You can look for divergence between the SO and the price action.
• Now I show you an example where the price breaks above the handle resistance and goes up strongly.
• If the handle drops below the lower half of the cup, it is no longer a ‘cup and handle’ pattern.
• Reverse cup and handle patterns can happen on both daily and weekly charts.

Below is an example of a EUR/USD cup and handle daily chart, where the handle represents a channel or trading range angled down. You can use derivatives such as CFDs or spread bets to trade when you see the cup and handle pattern. With derivatives trading, you don’t own the underlying asset, which means you can go long or short . A price target to the downside could be between 20%-50% but they can go lower and of course they can also rise back in price into the inverted handle and fail. A trader has to follow how it plays out by letting winning trades run but cutting losing trades short. Our next strategy for the cup and handle pattern is to enter on the first pullback after the initial breakout. During the cup formation, buyers would have been accumulating long positions and building bullish pressure, with the occasional test of the resistance level by trying to break out.

Bearish Cup and Handle Pattern

At the end of the reversed bearish move, the price reverses again and starts the creation of a bullish handle. The Big Tech share basket chart provides an example of this. Prior to the decline that started the cup and handle pattern, https://www.bigshotrading.info/ the price had advanced about 30% over several months. The upward momentum carried through following the cup and handle. The price may drop slightly, then rally back up, forming another handle or breaking above the initial handle.

The trend line needs to curve up and then down like an upside down cup. I will like to share some of the charts for cup and handle. But I don’t think we can attach our charts in the postings. Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media. For cup and handle reversal, look for a strong accumulation base to build the move.

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A stop-loss can be placed below the low price point in the handle. Below is an example of an inverted cup and handle on the FTSE 100 weekly chart. Although the pattern formed and the price did decline, ultimately, the price did not follow through to the downside. At the tip of the cup’s handle, the price has broken out, retesting the upper border of the handle. As at the time of writing, the market has formed a strong bullish candle. The Parabolic SAR indicator has aligned six dots below the candles.

Order execution should only occur if the price breaks the pattern’s resistance. Traders may experience excess slippage and enter a false breakout using an aggressive entry. The chart above of the Utility SPDR ETF illustrates an inverse cup cup and handle reversal and handle. After a downtrend, prices reverse in a gentle dome formation creating the cup. Prices change direction by retracing upward and then falling back to the support price level established by the low of the right lip of the cup.

Opening a Trade

Chart patterns are formations that appear on a stock’s price chart and often repeat themselves. Volume is the number of shares that change hands each day and can be used to confirm breakouts and trends. 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.

This is healthy for the stock and is simply an indication that a little more “work” is needed to allow the weak stockholders to get out. The same breakout requirements govern as with other breakouts.

Cup and Handle chart pattern: Where do you place your stop loss?

The price breaks out above the resistance level where a buy trigger signals to buy. Conversely, if prices are heading up fromGravestone Doji Reversal Candlestick the bottom of the cup, this is an indication that the market is in a bullish trend.

This is something that is more expected when a cup and handle forms on the chart. In most cases bulls will take the control after the formation of the handle and the price will go up after the handle resistance breakout. The price of the MARA is forming a potential inverted cup and handle pattern. A cup and handle pattern is formed when there is a price rise followed by a fall.