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

A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. The 60-minute cup and handle pattern offers an excellent timing tool when looking to buy a larger-scale trend that doesn’t show a low-risk entry price on the daily or weekly chart. Akamai Technologies, Inc. (AKAM) consolidated below $62 after pulling back to major support at the 200-day exponential moving average (EMA). It returned to resistance in early February of 2015 and dropped into a small rectangle pattern with support near $60.50. This rectangular handle held well above the 38.6% retracement level, keeping bulls in charge, ahead of a breakout that exceeded the measured move target and printed a 14-year high.

  1. Unless otherwise indicated, all data is delayed by 15 minutes.
  2. By measuring the distance from the right peak of the cup down to the bottom of the cup, a trader can set a potential profit target.
  3. Early entries can provide you with a lower buy price, but reduce your share size to compensate for slightly higher risk.
  4. Technical traders often buy right when the stock climbs back to the pivot price — or the top of the handle.
  5. If you set your stock scanner to meet your other trading needs, then you can flip through the results until you find a chart that looks like a cup and handle.
  6. Traders of all levels will love our charts, built-in scans, watchlist capabilities, and so much more.

One such pattern, the Cup and Handle, offers traders a powerful tool for identifying potential bullish trends. In this comprehensive article, we’ll explore how to identify and trade the Cup and Handle pattern in both forex and gold markets…. The target with the cup and handle pattern is the height of the cup added to the breakout point of the handle. Generally, these patterns are bullish signals extending an uptrend.

Our daily swing trading report, The Wagner Daily, also highlights top cup and handle patterns as they develop. There are several ways to approach trading the cup and handle, but the most basic is what does a python developer do 2022 guide to look for entering a long position. Place a stop buy order slightly above the upper trend line of the handle. Order execution should only occur if the price breaks the pattern’s resistance.

This handle looks nothing like the ideal pattern but serves the identical purpose, holding close to the prior high, shaking out short-sellers, and encouraging new longs to enter positions. Note that a deeper handle retracement, rounded or otherwise, lowers the odds for a breakout because the price structure reinforces resistance at the prior high. Whatever the height of the cup is, add it to the breakout point of the handle. For example, if the cup forms between $100 and $99 and the breakout point is $100, the target is $101. That means the asset’s price, which is trending lower to form the handle, should not drop to level of the lower half of the cup.

The round shape indicates consolidation, and that’s a good thing. If the cup is in a V-shape, the reversal will be too sharp of a movement. With a typical breakout entry above the handle high, your stop loss should be not more than 7% to 10% below your entry price. Proper technical analysis puts the odds of winning in your favor, but you must always be prepared to cut your loss if the pattern fails.

The traditional buy point is a breakout above the high of the handle, which clearly puts bullish momentum on your side. It’s important to note that the cup should be round rather than V-shaped. The pattern failed at first … but ended up completing the pattern three days later. Then, you can add the rest of your position size after receiving confirmation of the handle breakout.

When the handle is completed, a breakout from the handle’s trading range signals a continuation of the prior advance. Another issue has to do with the depth of the cup part of the formation. Sometimes a shallower cup can be a signal, while other times a deep cup can produce a false signal. Finally, one limitation shared across many technical patterns is that it can be unreliable in illiquid stocks.

This means that the price found a good support level that it couldn’t drop below for some time. That can provide traders with a strong point to set a stop loss. One of the most important chart patterns in the stock market is the Cup and Handle Pattern, invented by William O’Neill. It also holds the crowd proclaimed title as one of the most profitable and reliable breakout patterns. In the world of forex and gold trading, recognizing chart patterns can be your key to unlocking profitable opportunities.

Cup and Handle Pattern Rules: Buying with the Lowest-risk Entry Point

A subsequent breakout from the handle’s trading range signals a continuation of the prior advance. 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 profit target is determined by measuring the distance between the bottom of the cup and the pattern’s breakout level and extending that distance upward from the breakout.

The tables turn once again when the decline stalls high in the broad trading range, giving way to narrow sideways action. Short sellers lose confidence and start to cover, adding upside fuel, while strong-handed longs who survived the latest pullback gain confidence. Relative strength oscillators now flip into new buy cycles, encouraging a third population of longs to take risks.

The pattern’s formation usually signals an impending rise in the stock price. A stop-loss order gets a trader out of a trade if the price drops, instead of rallying, after buying a breakout from the cup and handle formation. The stop-loss controls risk on the trade by selling the position if the price declines enough to invalidate the pattern. In addition to the price levels, some traders also look at trade volume in the asset before entering a trade after a cup and handle pattern. Higher volume indicated that more investors are buying that asset, and higher demand could lead to higher prices in the near future.

Example Trading the Cup and Handle

After that, a handle forms, which is a slight downward drift in the stock’s price. But merely identifying the cup and handle chart pattern is not enough to profit. Rather, you must also know exactly when to buy for ideal, low-risk entry points.

Is the Cup and Handle a Bullish Pattern?

The cup and handle is considered to be a bullish signal in technical analysis. Continually scanning hundreds of charts to detect this pattern is challenging and time-consuming, but we’ve got you covered! Just sign up for your Wagner Daily PRO membership to receive the best swing trade alerts for the cup and handle and other top patterns.

If the price oscillated up and down several times within the handle, a stop-loss might also be placed below the most recent swing low. The longer the cup, the higher the reliability of the breakout and the greater the potential for an upward price surge. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealer or an investment adviser. If you can see what other traders are seeing and determine how they are thinking, you can make smarter decisions and trade more effectively.

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