New Ways to Trade the Cup and Handle Pattern

Cup and Handle Pattern

In this case, look for a strong trend heading into the cup and handle. For additional confirmation, look for the bottom of the cup to align with a longer-term support level, such as a rising ​trendline or moving average. Traditionally, the cup has a pause, or stabilizing period, at the bottom of the cup, where the price moves sideways or forms a rounded bottom. It shows the price found a support level and couldn’t drop below it. It helps improve the odds of the price moving higher after the breakout. You’ve identified a cup and handle pattern, but before you jump into the trade, you must wait for a handle to form completely.

Cup and Handle Pattern

It’s important to remember to look at the chart pattern over a longer-term time frame, such as daily, weekly, and monthly charts, in order to identify the pattern correctly. Additionally, when you identify the pattern, you should wait for the handle to form completely before entering a trade. To scan for a Cup and Handle Pattern, you can use manual charting techniques to look for the U-shape pattern in a stock’s price action. You can also use automatic screeners such as TC2000 to look for the pattern.

Take Breaks, Avoid Fatigue and be a More Productive Trader

Note that you should begin to measure the distance right from the breakout point. This will help you exit the trade automatically once it begins to go against you. This will prevent you from incurring more losses in case the price reverses in a bearish direction.

  • Sometimes a shallower cup can be a signal, while other times a deep cup can produce a false signal.
  • The size of the second target should be equal to the size of the cup.
  • This has been shown using the red arrow marked as Bearish Breakout through the Handle.
  • 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.

An example of a cup and handle pattern would be if a cup shape forms between $48 and $50. A handle should then form between $49 and $50, ideally closer to $50. Then the price should break out above the price range of the handle. The cup is formed after an advance and looks like a bowl or rounding bottom. The pattern starts when a stock’s price runs up, then pulls back to form a cup shape.

What does the cup and handle tells you?

However, if you look at the volume chart, the resistance breakout wasn’t supported by an increase in volume — a probable reason for the pattern failure. As mentioned earlier, the cup and handle pattern works with almost every timeframe. However, it is more accurate when viewed on a higher timeframe — such as a daily, weekly, or even monthly chart. If you’re looking to trade stocks and other assets online, one way to get started is by opening an investment account on the SoFi Invest® app. The online trading app lets you research, track, buy and sell stocks, ETFs, crypto, and other assets right from your phone. Although the cup-and-handle pattern can be a strong buy indicator, it does not guarantee that prices will go up.

Pro traders can use fiber levels early on to place stop losses at specific levels. This approach is beneficial if you want to check where the handle can form without invalidating the bullish trend. Let us now use everything we have on the to look at real-world examples from the crypto and stock markets. However, the right point to exit by booking profits is crucial. You should measure the distance between the bottom and the resistance line to determine the right level.

Chart Patterns

Typically, cup and handle patterns fall between seven weeks to over a year. A cup and handle pattern is formed when there is a price rise followed by a fall. The price rallies back to the point where the fall started, which creates a “U” or cup shape.

Cup and Handle Pattern

One way to avoid significant losses when this happens is to set a stop-loss on trades with your broker. Day traders may want to close out the trade before the market closes. You are now leaving the SoFi website and entering a third-party website. SoFi has no control over the content, products or services offered nor the security or privacy of information transmitted to others via their website.

It should be equal to the size of the bearish channel created around the handle. This bullish price move slows down gradually and eventually becomes bearish. You can also see that the two targets have been applied from the moment of the breakout. The formation of the handle also begins immediately after the formation of the cup. The first target is equal to the size of the channel during the handle. A bullish move begins, which moves to approximately the same level as the top of the bearish move.

  • We recommend that you combine it with other tools like Fibonacci and indicators like moving averages.
  • Second, the security will retrace, dropping no more than 50% of the previous high creating a rounding bottom.
  • After the formation of the handle, a bearish breakout happened through the handle.
  • Short sellers lose confidence and start to cover, adding upside fuel, while strong-handed longs who survived the latest pullback gain confidence.
  • An inverse cup and handle pattern forms with the bottom of the cup being at the top of the stock’s price movement.
  • As a general rule, cup and handle patterns are bullish price formations.
  • This information has been prepared by IG, a trading name of IG US LLC.

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