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Master the Cup and Handle Pattern: Simple 10-Step Checklist for Profitable Trading

Together with additional indicators, the cup and handle chart pattern can be a valuable tool in determining how to invest in stocks. Once the cup has emerged, the handle forms as the security once again falls in value by as much as a third, but not typically more. Once the handle has formed, the price should rebound dramatically, increasing beyond the price of the left side of the cup formation. If there’s no drop past the lip of the cup or no noticeable rebound, you don’t have a cup and handle formation. When you’re reading up on stocks or listening to interviews with professional traders, you may come across specific terms that describe different chart appearances. A cup and handle pattern is commonly used to help predict a bullish breakout for a security.

Risk-averse traders can enter once the asset breaks the resistance level of the cup. An increase in volume at this point can be a good indication. https://www.bigshotrading.info/blog/how-to-trade-stocks-cfds/ And finally, if your risk management game is solid, you might want to wait for a level retest after the breakout to get a clear confirmation.

Is a cup & handle pattern bullish or bearish?

During bear markets, some good cup with handle bases show a large, double-digit decline within the handle. The cup with handle is to serious investors in growth stocks what the single is to a baseball fan. It’s the starting point for scoring runs and winning the investing game.

For a trend to continue higher, it MUST make higher highs and lows. “Your stop loss should be placed at a level where if the market reaches it, your trading setup is invalidated”. However, the market could do a False Breakout and you are long the highs. So whenever you see a buildup of higher lows into resistance, it’s a sign of strength.

Most efficient Forex patterns: a complete guide

If you’re a penny stock trader, Schwab can give you most of what you need in a broker. The pattern failed at first … but ended up completing the pattern three days later. The stock had been making strong gains since February of that year, what does a cup and handle chart mean and started to take a rest in late July. We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors. The following chart, courtesy of StockCharts.com, illustrates the pattern.

• In a true cup and handle, the first thing we see is a noticeable drop, followed by a stabilizing period.
• Let’s look at what it is, what it indicates, and how we interpret its meaning.
• Risk-averse traders can enter once the asset breaks the resistance level of the cup.
• When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with.
• A temporary downtrend then replaces the uptrend as USD/EUR prices start falling again and reach a level of 2.7, another low.

You might think that the opposite of a panic-driven exit would be a good thing. 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.

Cup and Handle chart pattern: Where do you enter your trade?

It may not, so you should ideally avoid trading the pattern until it has fully formed, in order to confirm the trend. You could wait for the price to break above the handle to signal that the uptrend is continuing. Named for its distinctive shape, the cup and handle pattern is a powerful, bullish signal that can indicate a stock or crypto is likely to see a price increase in the future.

And usually, you exit your trades just before the opposing pressure steps in. If it doesn’t, then chances are it’s in a range or about to reverse lower. And when the trading setup is “destroyed”, the reason to stay in the trade is no more. The good thing about waiting for the close is it’s less prone to false breakout.

The bears’ power might not be enough to take over control in an ascending market, right? If so, it’s time to recall trading strategies based on the recovery of a previous trend. A typical example would be the Cup with Handle pattern by Thomas Bulkowski, the author of the bestselling Encyclopedia of Chart Patterns.