Cup and Handle Definition

Cup handle in trading

He has provided education to individual traders and investors for over 20 years.

Cup with Handle

Article Reviewed on July 22, Gordon Scott Updated September 17, Chart patterns occur when the price of an asset moves in a way that resembles a common shape, like a trianglerectangle, head and shoulders, or—in this case—a cup and handle. These patterns are a visual way to trade.

They provide a logical entry point, a stop-loss location for managing risk, and a price target for exiting a profitable trade. Here's what the cup and handle is, how to trade it, and things to watch for to improve the odds of a profitable trade. The Cup and Handle TradingView.

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It occurs when there is a price wave downfollowed by a stabilizing period, followed by a rally of approximately equal size to the prior decline.

The handle may also take the form of a triangle. The handle needs to be smaller than the cup.

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The handle should not drop into the lower half of the cup, and ideally, it should stay in the upper third. If the handle is too deep, and it erases most of the gains of the cup, then avoid trading the pattern.

A cup and cup handle in trading chart may signal either a reversal pattern or a continuation pattern.

New Ways to Trade the Cup and Handle Pattern

A reversal pattern occurs when the price is in a long-term downtrendthen forms a cup and handle that reverses the trend and the price starts rising. A continuation pattern occurs during an uptrend; the price is rising, forms a cup and handle, and then continues rising. The handle often takes the form of a sideways or descending channel or a triangle. Buy when the price breaks above the top of the channel or triangle.

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When the price moves out of the handle, the pattern is considered complete, and the price is expected to rise. While the price is expected to rise, that doesn't mean it will. The price could rise a little and then fall, it could move sideways, or it could fall right after entry.

Cup And Handle

For this reason, a stop-loss is needed. Setting a Stop-Loss TradingView. The stop-loss serves to control risk on the trade by selling the position if the price declines enough to invalidate the pattern. If the price oscillated up and down a number of times within the handle, a stop-loss might also be placed below the most recent swing low. If the stop-loss is below the half-way point of the cup, avoid the trade.

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Ideally, the stop-loss should be in the upper third of the cup pattern. By having the handle and stop-loss in the upper third or upper half of the cup, the stop-loss stays closer to the entry point, which helps improve the risk-reward ratio of the trade. The stop-loss represents the risk portion of the trade, while the target represents the reward portion.

Cup With Handle

That figure is the target. Sometimes the left side of the cup is a different height than cup handle in trading right. Use the smaller height, and add it to the breakout point for a conservative target. Or use the larger height for an aggressive target.

Cup and handle

Draw the extension tool from the cup low to the high on the right of the cup, and then connect it down to the handle low. Therefore, targets can be placed between one and 1. If you're day trading and the target is not reached by the end of the day, close the position before the market closes for the day.

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A trailing stop-loss may also be used to get out of a position that moves close to the target but then starts to drop again. A V-bottom, where the price drops and then sharply rallies may also cup handle in trading a cup.

Cup and Handle Definition

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.

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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. If the trend is up, and Coolest binary options indicator cup and handle forms in the middle of that trend, the buy signal has the added benefit of the overall trend.

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  2. Today we will talk about a somewhat lesser known pattern but one that is still highly effective.
  3. Trading the Cup and Handle Chart Pattern for Maximum Profit
  4. A cup and handle price pattern on a security's price chart is a technical indicator that resembles a cup with a handle, where the cup is in the shape of a "u" and the handle has a slight downward drift.
  5. Overlay Description William O'Neil's Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout.
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In this case, look for a strong trend heading into the cup and handle. If the cup and handle forms after a downtrend, it could signal a reversal of the trend. To improve the odds of the pattern resulting in a real reversal, look for the downside price waves to get smaller heading into the cup and handle. The smaller down waves heading into the cup and handle provide evidence that selling is tapering off, which improves the odds of an upside move if the price breaks above the handle.