Cup and handle patterns are frequently misidentified as simple dips in the value of a security, but they’re actually a very specific pattern. A Cup and Handle is both a bullish continuation and a reversal chart pattern that generally appears in an uptrend. A breakout above resistance signals that an uptrend may continue onto further gains. Many analysts look for confirmation of a strong buy signal in the form of a volume spike. Just flip the chart of a typical cup and handle upside down and you will see an inverse cup and handle.
There isn’t a stock scanner setting you can use to find a cup and handle pattern, but the pattern is easy to recognize visually. How to buy 0x 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. For example, a day trader may scan for stocks with a high average true range (ATR), and a swing trader might search for stocks that have performed well in recent weeks. The cup and handle pattern occurs when the price of an asset trends downward, followed by a stabilizing period.
How to Identify a Cup and Handle?
Traders should note this the pattern meets its 54 percent target only 63 percent of the time. The biggest risk of trading a cup and handle is a 5% chance of not breaking even or the 63% chance it will not meet its price target. It’s important to note that a cup and handle pattern may take three weeks up to one before the breakout happens. TradingView can automatically measure a cup and handle pattern and set a price target.
How to Identify the Cup and Handle
- That’s why in this trading strategy guide, I want to dive deep into the Cup and Handle pattern so you, yourself, can find your own “monster” breakout trades.
- This time, the cup prints a V-shape rather than a rounded bottom, with price stalling under the prior high.
- His findings give an authoritative insight into realistic performance.
- To spot a proper cup and handle pattern, look for a rounded “U” shape for the cup, which forms over at least 7 weeks.
The cup-and-handle pattern doesn’t indicate how long a price rise will last. The cup-and-handle pattern isn’t always reliable and should not be used in isolation. This means that a lot of people are going into the market, which can support even more price increases in the future. Then, you can add Stock Market Crashes the rest of your position size after receiving confirmation of the handle breakout. Discover the range of markets and learn how they work – with IG Academy’s online course. Rayner your knowledge has helped me in finding Trends & how to trade charts.
Cup-And-Handle Pattern is a type of chart pattern that traders use to identify potential buying opportunities. It occurs when the stock price has been decreasing then follows another rise after the decrease. This formation comes from how some traders use momentum strategies to trade patterns and trends seen on the chart. The buy signal is confirmed when the stock breaks above the resistance level that capped the uptrend during the handle formation. Volume should increase on the breakout, signaling increased investor interest and confidence in the stock. This often results in a rally that can last several weeks or months, and reach the target price that was calculated from the cup and handle pattern.
Cup and Handle Entry and Exit Points
If the stop-loss is below the halfway point of the cup, avoid the trade. Keep in mind the considerations of this pattern for a well-rounded approach to trading. This action helps animal spirits secure potential gains if the trade unfolds as anticipated, maximizing profit potential. Identifying the Cup and Handle Pattern involves recognizing the distinct “Cup” formation and identifying the subsequent “Handle”.
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Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. Hence they might prevent the price from climbing exceptionally higher.