Forex Tading

New Ways To Trade The Cup And Handle Pattern

The cup and handle pattern cannot exist without a prior uptrend. As a result, the pattern is found frequently within the crypto market. The pattern is confirmed when prices break above the high of the handle as the previous uptrend continues.

trading cup and handle

As we said, the classic cup and handle pattern has its bearish equivalent – the bearish Cup & Handle, which is a mirror image of the standard Cup & Handle. The two tops of the cup are approximately on the same area. This is the H1 chart of the most traded currency pair – EUR/USD. In the middle of the image you see a bullish Cup and Handle pattern, which is illustrated with the blue lines on the graph. The Cup and Handle pattern is a chart figure, which has a bullish potential. The pattern could appear after a price increase or a price decrease.

Lucky investors who get in at the bottom of the cup will, to be sure, make more than those who invest during the handle, but just as often they may predict recoveries that never come. The trading volume of a crypto asset makes a difference in determining a cup and handle pattern. However, crypto trading takes place on many different exchanges — and even off the exchange. Therefore, arriving at an accurate volume figure is extremely difficult. As a result, the trader will need to highlight the old high with a horizontal resistance line. Additionally, as the right side of the cup is created, we need to observe several bullish candles on rising trade volume.

Example Of How To Use The Cup And Handle

Some traders like these types of cups, while others avoid them. 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. Opponents of the V-bottom argue that the price didn’t stabilize before bottoming, and therefore, the price may drop back to test that level. Ultimately, if the price breaks above the handle, it signals an upside move.

  • Whether bullish candlesticks, bearish candlesticks or doji candlesticks each one tells a story.
  • See the second big bearish candle, which reaches the second target.
  • We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.

Rather than it to form a ‘u’ shape, it makes an ‘n’ shape, with the handle slightly bending upwards on the chart. The above is another example of a cup and handle pattern, but in the reversal pattern, which was formed in the ETH/USD daily chart. Taking a closer look at the chart, you can see shaping up an ascending triangle breakout, and the digital asset went post-breakout. This pattern is often considered a bullish signal, with the handle usually experiencing lower trading volume. However, there is also the other side of this pattern, the reverse cup and handle, which represents a bearish trade.

This gradual and slow range is what will set the stage for the bullish trend to resume. People will think this is a double top which will trap some cup and handle chart pattern weak sellers when we finally break upwards. Now that we learned what a Cup and Handle pattern is, it’s time to look beyond the price action.

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A major limitation to the cup and handle pattern is evidenced when applying it to small cryptocurrencies that do not have a large following. The cup and handle pattern works best with cryptocurrencies that are growing their following. The more buying and selling interest that exists, the better the gauge of the pull between buyers and sellers. As you know by now, the pattern consists of two parts, the cup plus the handle.

trading cup and handle

The cup and handle pattern is an effective combination to flush out weak holders. An effective handle will drift lower, rather than trend lower. This sows doubt among short-sellers, who become nervous about the failed trend to the downside.

Finding Local Max And Min Points From The Ohlc Data And Define The Pattern Via These Points

To conclude, the Cup and Handle is a popular chart pattern that is heavily used by technical traders as an indicator of future price trends. It can be used in a variety of asset markets to indicate the direction the market is headed in, and always signals an upcoming bullish Forex dealer momentum in price trend. A cup-and-handle pattern is the name of a chart pattern used intechnical analysis that describes a bullish continuation trendin the price of a security, typically a stock. Traders sometimes use this pattern as a signal about when to buy the stock.

trading cup and handle

When this breakout from the rim of the cup fails it starts to fall back to build the “handle” structure. Usually, the handle structures are small, and the handle depth Credit default swap should not exceed more than 50% of cup depth. This handle part of the pattern generates interest in buyers as they expect the pattern to breakout from these levels.

What Is An inverted Cup And Handle?

The pattern has better odds of success if the stock had a previous uptrend leading into this pattern showing historical demand and accumulation. Cup and handle patterns are not good probability trades if the general market is in a correction or a bear market. 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.

Bearish Cup And Handle Pattern

A Cup and Handle pattern is a bullish continuation pattern that resembles a teacup on a candle chart. The handle part is when the price pullback slightly before roars higher and continues the previous trend. The Cup and Handle pattern can take between 30 to 50 candles to form on any given time resolution. A Cup and Handle can be used as an entry pattern for the continuation of an established bullish trend. The cup has a soft U-shape, retraces the prior move for about ⅓ and looks like a bowl. After forming the cup, price pulls back to about ⅓ of the cups advance, forming the handle.

Measure the distance from the cup high to the cup low and project that same distance beginning at the handle’s low point. So long as the handle remains in the upper half of the cup, this level of price projection leads to an attractive risk-to-reward ratio on the trade. After a big uptrend in price (#1), the market begins to correct lower (#2), shaping the first half of the cup. The dip in #2 generally retraces about 30–50% of the length of the previous uptrend. However, there are instances where a deeper correction may take hold.

Context: When To Trade Cup And Handles

Similar to the candlestick patterns, signals from these indicators, therefore, serve as great confirmation tools when trading the Cup and Handle Pattern. The Cup and Handle Pattern may seem like a simple chart pattern formed as a result of the herd mentality that exists in the capital markets. But, carefully reading this pattern may provide some very useful insights on the future price performance of the security that you are trading. That being said, the market psychology forces that lead to the development of this pattern are different in an uptrend versus a downtrend. However, this has no implications on the directional guidelines on the future price action that the pattern indicates or on the strategies that you leverage for trading this pattern.

Cup Shape

Notice in the scan above I am only looking at stocks that have outperformed the S&P 500 by more than 20% over the last year and 2 years. Wait for volatility to contract during the handle, and volume should drop during the consolidation. A tight consolidation will reduce the risk, and volume often drops significantly just before a big price move higher. Your position is not random or based on how strongly you feel about a trade or stock.

Author: Julie Hyman

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