Unfortunately, Thomas Bulkowski doesn’t give us any clear and solid answer on what kind of statistical expectancy you can expect by using the cup and handle strategy. As you can see in the chart, the price reached the projected target before making a pullback. Call me crazy, but actually using the technicals right in front of my face makes far more sense than applying some universal profit target system.
The ideal profit target for the Cup and Handle trading strategy would be equal to the same distance in price as measured from the initial Cup peak to the bottom of the Cup. There are times you’ll see peaks so it’s important to remember to look at the overall picture. Those may be double tops forming which is also a bearish pattern. Inverted head and shoulders patterns are common patterns found on charts. There can be a smaller inverse cup and handle inside a large cup and handle.
What is the Target for Cup and Handle Pattern?
Lastly, illiquidity also restricts the cup and handle from fully forming as trading volume also affects an asset’s price. 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. consolidated below $62 after pulling back to major support at the 200-day exponential moving average . It returned to resistance in early February of 2015 and dropped into a small rectangle pattern with support near $60.50.
The pattern has better odds if it’s a growth stock in a strong sector that has increasing revenue and earnings growth expectations. The information in this site does not contain investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. If you’re not ready to start straight away, you can practise your trades on a risk-free demo account. The more you know about how they think, the smarter you can start to trade. First, many online sources give precise definitions of the cup and handle.
The Cup and Handle pattern confirmation comes when the price breaks above the “handle” — and that’s where you can enter a trade. The last thing you want to do is short the market because it’s likely to breakout higher. To form the handle, the price must approach Resistance and form a tight consolidation . Make sure you also don’t miss our amazing Triple Top Chart Pattern Trading Strategy which is the ultimate reversal trading strategy that you can have in your trading arsenal. Now we move to the second component of the Cup and Handle pattern and the second step of the Cup and Handle trading strategy.
The handle will typically form a descending trendline – aim to enter when the price breaks above this descending trendline. Also watch for sharply increasing trade volume, as that indicates that the stock may be about to break out. Microsoft Corporation printed two non-traditional cup and handle patterns in 2014. It topped out at $41.66 in April and pulled back to the 38.6% retracement of the last trend leg. Price carved out a choppy but rounded bottom at that level and returned to the high in June. It then ground sideways in a consolidation pattern that lasted for more than five weeks, or close to half the time it took for the cup segment to complete.
After the formation of the cup, the price action begun a new bearish move. The handle is supposed to reach the midpoint of the cup and handle formation. The pattern also has its bearish equivalent, the inverted cup and handle pattern. The buy point occurs when the stock breaks out or moves upward through the old point of resistance .
What Happens After a Cup and Handle Pattern Forms?
It can be contained inside two parallel lines, or it can take the shape of a smaller rounded bottom. So, the first Cup and Handle rule is that you need to have a previous trend. Traders take a short position once the base of the cup breaks and holds. Then, watch if price can break support at the base of upside down cup and hold. Watch for consolidation to form upside down cup pattern.
You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. It’s a kind of double cup, a clear handle, and a clean breakout.
You could also place an order above or below the handle to buy or sell when the asset reaches a more favourable price. An order allows you to open a position at a price you choose, rather than the one currently being quoted. I became a self-made millionaire by the age of 21, trading thousands of Penny Stocks – yep you read that right, penny stocks. The entire electric vehicle sector was going crazy that week.
Customers who want to use their accounts for it’s all a matter of perspective trading must obtain the broker-dealer’s prior approval. Customers must also be aware of, and prepared to comply with, the margin rules applicable to day trading. There are special risks involved with trading on margin.
Cup and Handle Pattern Guide
In a trending market, the price can remain above a Moving Average for a long period of time. Now, you don’t want to put your stop loss at the exact low of the handle because the market could trade into that area of value and reverse higher. We always recommend you to backtest first the pattern and trade it a few times on a demo until you’re comfortable and have a good understanding of how to trade this setup. Use the same rules – but in reverse – for a SELL trade, but this time we’re going to use the inverted Cup and Handle pattern.
https://business-oppurtunities.com/ trading is subject to significant risks and is not suitable for all investors. Any active trading strategy will result in higher trading costs than a strategy that involves fewer transactions. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case. Investopedia does not provide tax, investment, or financial services and advice.
Use this simple, 10-step checklist below to discover how to identify a cup and handle pattern—the right way. While the price is expected to rise after a cup and handle pattern, there is no guarantee. The price could increase slightly and then fall; it could move sideways or fall right after entry. 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. Ideally, the price should stay within the top 1/3rd of the height of the cup.
You can then draw the shape of a bullish handle on the right side of the cup. The second target should also be applied downwards right from the moment of the breakout. The first target should be equal to the size of the bearish channel around the handle. After confirming the pattern, the price is most likely to break the channel of the handle, starting a bullish move. The price action then starts to create the handle, which is a structure created by a bearish price move. The handle part has been formed by a bearish price move.
- The cup and handle chart patterns triggers a signal when it breaks out of the handle.
- Finally, one limitation shared across many technical patterns is that it can be unreliable in illiquid stocks.
- One of the most popular chart patterns is the cup and handle pattern.
- Lastly, it has been identified that at times cup and handle patterns can be unreliable in illiquid stocks.
In most cases, the decline from the high to the low of the handle shouldn’t exceed 8%–12%. If it does, it shouldn’t exceed the previous drop within the cup. Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.
Once the price has reached the top of the cup, it starts moving sideways or slightly downwards to form the handle. If the handle drops below the lower half of the cup, it is no longer a ‘cup and handle’ pattern. In most cases, the handle should not dip below the top third of the cup for it to be a cup and handle pattern. Knowing how to read and interpret charts is one of the most important aspects of trading.
Traders can also use the larger height to achieve a more aggressive target. For those unfamiliar with what a cup and handle chart looks like, the chart below is an ideal example of a Bitcoin cup and handle continuation pattern. It is also known as the bullish cup and handle pattern, signaling a potential uptrend in prices.
When trading the pattern, it may be better to wait until the price breaks above the cup’s swing high. The cup forms after an advance and looks like a bowl or rounding bottom. 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. The cup and handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. It is considered a signal of an uptrend in the stock market and is used to discover opportunities to go long.
The cup and handle is one of many chart patterns that traders can use to guide their strategy. If you look at the regular cup and handle pattern, there is a distinct ‘u’ shape and downward handle, which is followed by a bullish continuation. This means the inverted cup and handle is the opposite of the regular cup and handle. Instead of a ‘u’ shape, it forms an ‘n’ shape, with the handle bending slightly upwards on the chart. An ‘inverted cup and handle’ is a chart pattern that indicates bearish continuation, triggering a sell signal. The pattern completes only when the price breaks out from the handle’s trading range to signal the continuation of the previous rally.