Handles are relevant to all financial markets, but mean different things depending on the asset. The Cup with Handle confirmation comes when the price breaks out of the handle. The Cup with Handle pattern has its bearish equivalent, and is referred to as an Inverted Cup and Handle formation. This is the hourly chart of the USD/CAD Forex pair for March 25-30, 2016. The image illustrates the way a bearish Cup and Handle pattern could be traded. The stop loss order of this trade needs to be placed below the lowest point of the handle.

Subsequently, there’s a rally that is almost equal to the previous decline. To identify the cup and handle pattern, start by following the price movements on a chart. The pattern starts to form when there is a sharp downward price movement over a short time. This is followed by a period where the price remains relatively stable. Then, there is a rally that is more or less equal to the initial decline. These movements form a ‘u’ shape on the chart – this is known as the cup.

Also watch for sharply increasing trade volume, as that indicates that the stock may be about to break out. Another consideration when evaluating a cup and handle pattern is trading volume. Cup and handle patterns typically are seen to occur on a daily chart after a strong trend has progressed for one or more months. The inverted cup and handle is the opposite version of bullish cup and handle. The formation starts with at the lows as price recovers to form a rounding top like an upside U shape before selling off to form a bear flag.

Opening A Trade

During this phase the stock may be the subject of positive Wall Street analyst comments, a new product announcement or legal victory. As the rally gains steam sentiment improves dramatically and new buyers begin to talk about certain new highs but those that purchased the stock at or near top#1 get ready to sell. These investors may have been waiting as long at 12 weeks for an opportunity to sell their positions without incurring a loss and they are not dissuaded by all of the new found bullish talk. Just short of the old highs at top#1 aggressive selling begins on no specific news but in reality some investors that bought near top#1 have already begun to sell. The stock begins to work significantly lower on increased volume creating a second, well defined top (top#2). The price action breaks upwards and we apply the two targets.

A breakout from the handle’s trading range signals a continuation of the previous uptrend. Chart patterns form when the price of an asset moves in a way that resembles a common shape, like a rectangle, flag, pennant, head and shoulders, or, like in this example, a cup and handle. Now let’s demonstrate the bullish and the bearish Cup and Handle strategy in action. cup and handle chart pattern The examples below will help clear out any questions you may have related to trading the Cup and Handle pattern in Forex. If you trade a bullish Cup with Handle pattern, you should place your stop loss order below the lower level of the handle. If you trade a bearish Cup with Handle your stop loss order should be placed above the upper level of the handle.

This is used in conjunction with the Stocks Over Coffee Podcast on Technical Education Cup with Handles. Apple is the largest company in the world with a market cap of 2 trillion. This is no easy feat to accomplish but is there a way to get into a small company before it becomes a household name? A dull market consists of low trading volumes and tight daily trading ranges. Investopedia does not provide tax, investment, or financial services and advice. Investing involves risk, including the possible loss of principal.

Picking A Target Or Profitable Exit

The handle has to be smaller than the cup and should only indicate a slight downward trend within the trading range – not one that goes lower than one-third of the way into the cup. Investors who see a similar pattern where the handle goes deeper might want to make efforts to avoid it. The problem with the setup is that everyone uses the same approach when determining entry and exit for the formation. 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.

In an uptrend, the pattern signals a bearish reversal, whereas, in a downtrend, it indicates a bearish continuation. Like most technical patterns, the cup with handle pattern is really little more than a variation of another technical pattern. The pattern begins after a well-liked stock rallies to a new high following a positive fundamental development. As the stock surges investors feel increasingly comfortable paying higher prices but there comes a point when the “story” of the stock fails to convert new believers.

Entering A Cup And Handle Trade

An inverse cup and handle pattern is the exact opposite of what we have talked about. The pattern happens when the price Credit default swap of an asset is declining. A good example of cup and handle pattern at work is to look at the long-term chart of gold.

To indentify peaks and troughs, we can use a smoothing function like moving average. For whatever reason, I love this pattern (mixed with a few other indicators/conditions) with all this volatility. I’m extremely determined to create a millionaire trader out of one my students and hopefully it will be you. The syllabus takes you from complete newbie through all the strategies I teach. The Complete Penny Stock Course.” It answers most of the questions new traders ask me.

Channel Pattern: What Is It? How To Trade It?

When the bull flag triggers spiking the price through the lip, the cup and handle pattern is triggered the trend resumes the next leg higher with new highs. However, the bearish version can form when the pattern is inverted. When the pattern is complete, a long trade could be taken when the price breaks above the handle.

These results and performances are NOT TYPICAL, and you should not expect to achieve the same or similar results or performance. Your results may differ materially from those expressed or utilized by Option Strategies insider due to a number of factors. Whether the market is up, down, or sideways, the Option Strategies Insider membership gives traders the power to consistently beat any market. In the market where false signals are readily available, you can essentially use the Ichimoku Cloud to ignore signals, which lack conviction. Now, let’s revisit the same chart using the logic of selling the supply or upper resistance line on the chart.

Trading The Cup And Handle Pattern For Best Results

When trading this pattern, it is essential that you allow for the Cup and Handle Pattern’s construction to complete before trying to make any trades using it. If you do not do this, you stand the risk of having made an inaccurate call that could cost you a lot of money when the trade goes against you. The Handle should have a slope that leads to almost horizontal movement and not one that downtrends below one-third of the distance between the breakout point and the bottom of the cup.

The reverse cup and handle pattern is an upside-down cup followed by a handle and a breakout to the downside. The pattern is formed by a drop, a rally, then another drop back to where the rally started. A handle forms, which should be less than a third the size of the cup. Trading with the cup and handle pattern is slightly different when applying it in trading forex and equities. The volume function is often used in stock trading as a rise in volume shows the breakout which confirms the signal to enter the trade.

• TradeVeda and/or I are not liable for any damages and/or losses caused due to trading/investment decisions made based on the information shared on this website.
• When that is not the case, you should trade the pattern with caution.
• You could wait for the price to break above the handle to signal that the uptrend is continuing.
• Our team at Trading Strategy Guides is working hard to develop the most comprehensive guide on different chart pattern strategies.
• Essentially, this can be seen as an indication that the downtrend will continue, and that the anticipated rebound will not occur.

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 there is no handle, then the cup itself must stretch a minimum six weeks. You need to know if that cup Venture capital with handle is as it should be, or if it has flaws. 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.

Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. 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. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.

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. Note the large bearish move on the chart following the breakdown. The Cup with Handle trigger signal is at the break out of the handle.

Last year I spent several weeks working with my friend from Princeton to implement Cup and Handle pattern scanner. I would now like to share some of our key findings during the development of the algorithm. Price persistence is the tendency of a security’s cost to continue moving in its present direction. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism.

Also consider that the breakout may have started later in the day. Even if all other parameters come together, you should avoid stocks that break out below their 10-week moving average. A loose, choppy base shows the stock needs to go far for price discovery. If institutions are holding on to the stock, it won’t fall too far. Try to limit your picks to cups that are no more than 30% or 33% deep, except for those built during a bear market.

Contrarily, in a downtrend, the pattern signals a potential reversal. By appearance, the pattern resembles a teacup with a handle and is accordingly named. This large U-shaped pattern may look like a typical double top but for the purposes of this pattern, it is called the cup. Noting key resistance at top#1 and top#2, speculators begin to initiate short positions. From a technical perspective, this is a very important part of the pattern.

Stay on top of upcoming market-moving events with our customisable economic calendar. China stocks had a tough week as many of the largest internet companies were hammered with bad news revealed in… At that point, it makes sense to exit the stock, even if the 7%-8% loss-cutting sell rule has not yet been triggered. While the price is expected to rise, that doesn’t mean it will.

On the chart above, I’ve drawn three arcs to represent cups. And it’s a good example of a cup and handle pattern failure. The bounce out of the handle was very small before continuing downward. The structure of the “Cup” portion of the pattern reveals important information with regards to the market’s interaction with the asset. This is because the Cup of the pattern can take several different shapes depending on the relative duration over which it is formed.

Author: Lorie Konish