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Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with. With this pattern, a buy signal occurs when the price breaks out of the upper trend line of the price channel that forms the handle. There should be a substantial increase in volume on the breakout above the handle’s resistance. Alternatively, you place a stop buy order slightly above that upper trend line. Sometimes, it is prudent to wait for a breakout above the resistance line established by the highs of the cup.
The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right-hand side, and the handle is formed. A subsequent breakout from the handle’s trading range signals a continuation of the prior advance. A cup and handle is a technical indicator where the price movement of a security resembles a “cup” followed by a downward trending price pattern.
What does a cup and handle pattern indicate?
One of them is that it can take some time for the pattern to fully form and the duration is not known beforehand, which may affect the trader’s plan and can lead to late decisions. The pattern typically takes 1-6 months (or even years) to form, but it can also happen quite quickly or take much longer, making it ambiguous in some cases. Once you spot a chart with a Cup With Handle pattern, it’s best to wait for price to break out of the handle before entering a long position. But before you do, make sure that trading volume is strong.
By learning to recognize them in real time, traders can limit their risks by determining the best points for entry and exit. The SOLO chart in this post showed a pretty clean breakout. The entire https://www.bigshotrading.info/blog/what-is-the-stochastic-oscillator-and-how-to-use-it/ electric vehicle sector was going crazy that week. Self-sufficient traders know and use ALL the information at their disposal. On the chart above, I’ve drawn three arcs to represent cups.
What Is a Cup and Handle?
Please be aware that an order should only be executed if the price surpasses the pattern’s resistance. Most traders often combine multiple indicators to confirm their predictions. It helps them understand the future of the coin and boosts confidence. It is very common for traders to invest after identifying patterns or flags.
- The storm’s angle of approach, the shape of a coastline and the speed of a storm are all important factors, according to NOAA.
- As such, it is one of the top chart patterns we consistently target in our flagship stock and crypto swing trading services.
- The following material will outline the unique structure of this pattern as well as a strategy for successfully trading it.
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- Those that like them see the V-bottom as a sharp reversal of the downtrend, which shows buyers stepped in aggressively on the right side of the pattern.
- This strategy places the handle and the stop-loss in the cup’s upper third (or upper half) so that the stop-loss stays close to the entry point, improving the risk-reward ratio.
Generally, these patterns are bullish signals extending an uptrend. The cup and handle pattern is a continuation chart pattern that looks like cup and handle with a what does a cup and handle chart mean defined resistance level at the top of the cup. An inverse cup and handle pattern forms with the bottom of the cup being at the top of the stock’s price movement.
How successful is cup and handle pattern?
A conservative price target can be achieved by measuring the height of the handle and adding it above the resistance level at the top right-side of the cup. Sometimes, the left side of the cup is a different height than the right. Use the smaller height and add it to the breakout point for a conservative target. You could also use the larger height for an aggressive target.
- You could hold the trade as long as the price action is located above the yellow bullish trend line.
- The second target is located on a distance equal to the size of the cup, applied again from the moment of the breakout.
- Another issue has to do with the depth of the cup part of the formation.
- The best place to enter a trade using this pattern is when the handle forms.
- It’s important to know the classic chart patterns — and recognize them.
- In the final leg of the pattern, the stock exceeds these resistance levels, soaring 50% above the previous high.
If you want to be conservative with your predictions, make your target-marking point that same distance from the side. An aggressive target can also make use of a higher height. Wherever the height of the cup may be, add it to the measurement from the breaker point of the handle. For example, suppose Bitcoin was currently trading at $6,000, and you wanted to set a stop-loss at $5,000 as soon as Bitcoin falls below $5,000 for any reason. In that case, the exchange automatically closes your trade, and all losses will be limited to around 10%. Once the price moves out of the triangle, the pattern is complete, so you expect it to go up.
