Master the Cup and Handle Pattern: Simple 10-Step Checklist for Profitable Trading
The bullish cup and handle pattern’s opposite is the bearish inverse cup and handle pattern, also known as the “inverse cup and handle” or the “reverse cup and handle pattern”. A cup and handle pattern is the least reliable in choppy sideways market conditions with no trend direction. The cup and handle pattern most popular indicator used is the volume indicator which helps measure the strength of a cup and handle pattern breakout. The top cup and handle pattern trader is American investing champion Mark Minervini who trades a variation of the pattern. Cup and handles can be applied to scalping strategies, day trading strategies, swing trading strategies, position trading strategies, and investing strategies.
Master the Cup and Handle Pattern: Simple 10-Step Checklist for Profitable Trading
That means it can become a self-fulfilling prophecy when enough traders see it forming. The best place to enter a trade using this pattern is when the handle forms. Remember, patterns won’t look perfect all the time, and it’s unrealistic to expect them to do so.
The next time you come across a potential cup and handle pattern, use our simple 10-step checklist above to verify the pattern is valid (be sure to bookmark this page for easy reference). However, many swing traders prefer earlier entry points before the actual breakout above the handle. When the cup and handle follows through, it typically generates gains of +20% to 30% over several weeks (see above). But don’t worry, we’ve prepared an easy 10-step checklist to help you identify a valid cup and handle pattern. Completion of the cup and handle pattern occurs after the price breaks out above the high of the handle and zooms higher.
So when the Handle is absent it often indicates that the price is rising with great enthusiasm without much resistance reaction. The Handle of the pattern is nothing but a pre-breakout build-up or retracement. In this easy-to-follow guide, I’ll walk you through every step to trade this pattern like a pro.
- Because volume tends to be high while the price falls from the Left Lip but gradually decreases as it reaches the base of the Cup.
- It starts when a stock’s price runs up at least 30% … This uptrend must happen before the cup base’s construction.
- Secondly, plot the handle component which involves drawing a smaller rounded U shape from left to right that connects the swing low prices together.
- So when the Handle is absent it often indicates that the price is rising with great enthusiasm without much resistance reaction.
Patterns help us recognize possible upcoming movements so that we can create trading plans to catch moves that fit our strategies. Here’s an example of a cup and handle in a longer time frame. NGTF started the pattern at the end of November 2018 and went into February of 2019.
Volume breakout After the formation of the cnh, the market will try to make a run, temporarily breaking the horizontal resistance. The cup and handle pattern’s lowest win rate is the 1-second price chart with a 43% win rate. This example is best for medium term and longer term position traders seeking to trade a cup and handle.
An inverse cup and handle pattern forms with the bottom of the cup being at the top of the stock’s price movement. The handle forms as a subsequent, smaller upward movement at the top of the cup (near the bottom of the chart pattern). 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.
Every day we provide members with mentorship, webinars, chat, trading education, and community. It’s all so you can ask questions, get answers, and find your market vr programming: top 10 coding languages you must know groove. If you can see what other traders are seeing and determine how they are thinking, you can make smarter decisions and trade more effectively. Look for a roughly 30% downward move, an inverted U-shaped correction, and a bounce handle. Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.
What Markets Do Cup and Handle Patterns Form In?
And again the volume gradually increases as the price starts to move up. Well, the Handle is the retracement itself and its shape varies in each formation (they could be like Troughs, Rectangles, or Tilted Congested Zones). The price level or the peak from which the price does the downside retracement becomes the Right Cup Lip. The price starts to fall slowly from a peak for several days (or bars) and takes on a curved shape. It’s important to note that the cup should be round rather than V-shaped. One of its limitations is the ambiguity of the pattern formation.
Eventually, the stock finds a floor of support for weeks or longer before climbing again. It can take some time for this pattern to develop … but traders like it because it’s easy to recognize and has an excellent risk to reward ratio. The Bullish Bears trade alerts include both day trade and 7 best financial stocks for the rest of 2021 swing trade alert signals.
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Identify the Cup and Handle On A Price Chart
Of course, keep in mind that the cup and handle pattern can fail, so always use stops. Don’t risk more than 7% to 10% below your entry price—even less with an early entry point. In order to prevent a false signal, it’s important to receive cup and handle pattern confirmation before buying. Use this simple, 10-step checklist below to discover how to identify a cup and handle pattern—the right way. ✅This pattern is not as popular among traders as “Head and Shoulders”, “Double Top” and other classic patterns of technical analysis. In fact, the “Cup & Handle” pattern is in no way inferior to the above patterns in its reliability and, if used correctly, can bring considerable benefits to the…
When entering any trade, it is important to remember the fundamentals of trading and not just focus on chart patterns. Combining sound fundamental analysis with technical indicators can provide a more comprehensive approach that can increase your chances of success in trading. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. The cup and handle pattern psychology is characterized by increasing bullish sentiment. During the cup formation, the rounded bottom indicates a shift as selling pressure subsides and buyers cautiously enter the market. This phase reflects a hesitancy among previous sellers to exit trade positions at lower prices, while new buyers see a buying opportunity.
Is a Cup and Handle Pattern a Continuation or Reversal Pattern?
Cup Tio markets depósito and handle patterns form on candlestick charts, line charts, point and figure charts, area charts, open high low close (OHLC) charts, and bar charts. The success rate of the Cup and Handle Pattern is about 60%. This success rate is based on the probability of hitting the price target.
The Base is nothing but a strong support level of the pattern. And together with the rounded shape the pattern looks like a Cup with a Handle (the way your teacup looks). If the price reverses and declines after the pattern is confirmed, it is considered bearish, and the pattern has failed. I often tell new traders to study charts until their eyes bleed. That’s a bit of an exaggeration, but I want every trader to understand how much a chart can tell you. The inverted cup and handle is the opposite of the pattern I just broke down.