When a chart pattern forms a Cup and Handle, it typically signals a bullish continuation pattern, suggesting that the price is likely to break out to the upside after a period of consolidation. This pattern is commonly seen in stocks, cryptocurrencies, and other financial assets.
Key Characteristics of the Cup and Handle Pattern:
Cup Formation:
The price gradually declines, forming a rounded bottom.
This phase indicates accumulation and consolidation.
Volume usually decreases during the cup formation.
Handle Formation:
After the cup, a small downward drift (handle) forms, representing a pullback.
The handle is usually a short-term consolidation before a breakout.
Volume typically contracts further during this phase.
Breakout:
Once the price breaks above the resistance level (the cup’s rim), a bullish move is expected.
Volume should ideally increase significantly during the breakout.
Trading the Cup and Handle Pattern:
Entry Point:
Enter a trade when the price breaks above the resistance (the highest point of the cup).
Some traders wait for a retest of the breakout level for confirmation.
Stop Loss:
Set a stop loss below the handle's low or the cup’s bottom to minimize risk.
Profit Target:
Measure the depth of the cup and project that distance upwards from the breakout point.
For example, if the cup depth is $10, the expected price target after breakout would be $10 above the breakout level.
Limitations of the Pattern:
False breakouts can occur, leading to losses.
The pattern works better in strong bullish market conditions.
A prolonged handle could indicate market hesitation and invalidate the pattern.
Key Characteristics of the Cup and Handle Pattern:
Cup Formation:
The price gradually declines, forming a rounded bottom.
This phase indicates accumulation and consolidation.
Volume usually decreases during the cup formation.
Handle Formation:
After the cup, a small downward drift (handle) forms, representing a pullback.
The handle is usually a short-term consolidation before a breakout.
Volume typically contracts further during this phase.
Breakout:
Once the price breaks above the resistance level (the cup’s rim), a bullish move is expected.
Volume should ideally increase significantly during the breakout.
Trading the Cup and Handle Pattern:
Entry Point:
Enter a trade when the price breaks above the resistance (the highest point of the cup).
Some traders wait for a retest of the breakout level for confirmation.
Stop Loss:
Set a stop loss below the handle's low or the cup’s bottom to minimize risk.
Profit Target:
Measure the depth of the cup and project that distance upwards from the breakout point.
For example, if the cup depth is $10, the expected price target after breakout would be $10 above the breakout level.
Limitations of the Pattern:
False breakouts can occur, leading to losses.
The pattern works better in strong bullish market conditions.
A prolonged handle could indicate market hesitation and invalidate the pattern.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.