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Cup and Handle Pattern: What Does It Mean?

A breakout occurs when the stock price pushes above the resistance level created by the highs of the handle. The first example shows a shallow cup and handle pattern developing over the course of approximately two to three months. The cup features a gentle pullback after a strong bullish movement and the right side of the cup reaches the same price level as the left side of the cup. The false breakout in the handle on August 13 occurs on low trading volume, demonstrating the importance of using trading volume as a method of confirming the breakout.

  • You could also use the larger height for an aggressive target.
  • A large increase in volume during the breakout could suggest that institutional investors are getting behind the stock.
  • It is a bullish continuation pattern that marks a pause in the bullish trend.
  • When it comes to taking profits, traders can use the greater pattern to inform exit positions.
  • Further, the pattern tells you not to worry when the price reaches at the resistance and either consolidates or starts retreating.
  • For example, suppose a cup forms between $50 and $49.50.
  • Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.

If a cup and handle forms and it is confirmed, the price should see a sharp increase in the short- to medium-term. If the pattern fails, this bull run would not be observed. James Chen, CMT is an expert trader, investment adviser, and global market strategist. We know that Gold’s Cup and Handle Pattern is a very bullish pattern as it has a measured upside target of $3,000.

The Cup and Handle Swing Trading Strategy — Explosive, Consistent Price Moves

The next way to trade the pattern is to wait for a break and retest. Here, you should wait for the price to retest the now-support level and place a bullish trade. Free Webinar with Mark Minervini Register for IBD’s free webinar with 2-time investing champion Mark Minervini! Make more money in stocks with 2 months of access to IBD Digital for only $20! The stock needs to show a 30% uptrend from any price point, but it must be before the base’s construction.

It can be horizontal or angled down, or it may also take the form of a triangle or wedge pattern​. A cup-and-handle chart pattern resembles a cup of coffee with a cup and handle . It is a bullish continuation pattern that marks a pause in the bullish trend. The entire pattern can be anywhere between 1 month to a little more than year. The handle should generally by anywhere from a quarter to a little less than a half of the cup duration. The cup and handle pattern has been around for over 30 years and is widely followed by many technical traders. Though limitations of the pattern are not to be ignored, the strong trends in crypto help make the cup and handle pattern effective in trading crypto markets.

The Handle

As more bears come, the price moves lower to a certain point. Bulls then start coming in and take the price to the previous high.Bears come in again and push the price lower. Get Started Learn how you can make more money with IBD’s investing tools, top-performing stock lists, and educational content. Try to limit your picks to cups that are no more than 30% or 33% deep, except for those built during a bear market. In that case, an exceptional growth stock can fall 40%, 50% or more and still make a successful breakout. An upward-sloping handle is flawed; it represents weak demand as new buyers move into the stock at a trickling pace.

Is cup and handle pattern bullish?

William O'Neil's Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. There are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom.

The handle can develop over one week to several months on a daily chart, although ideally completes in less than one month. A Triple Bottom is a chart pattern that consists of three equal lows followed by a break above resistance. The chart pattern is categorized as a bullish reversal pattern. A breakout is when the price moves above a resistance level or moves below a support level. The price movement of a breakout can be described as a sudden, directional move in price that is… A breakout from the handle’s trading range signals a continuation of the previous uptrend. As the cup is completed, the price trades sideways, and a trading range is established on the right-hand side and the handle is formed.

Cup and handle patterns: bullish or bearish?

Trading and investing in financial markets involves risk. The pattern begins with an upward trend in stock price that leads to a peak. This suggests bullish sentiment about the company’s performance.

  • Ideally, there are two drops, with the second smaller than the first.
  • As the name implies, a cup and handle pattern looks like a cup with a handle.
  • First, it is a relatively easy pattern to identify in a chart.
  • As the cup is completed, the price trades sideways, and a trading range is established on the right-hand side and the handle is formed.
  • The height of the cup and the initial up trend are also important to have a successful cup and and handle pattern.

If the price oscillated up and down several times within the handle, a stop-loss might also be placed below the most recent swing low. It should not drop into the lower half of the cup, and ideally, it should stay in the upper third. Learn about the cup and handle, how to trade it, and what to watch for to improve the odds of a profitable trade. Although many of our stocks have moved up, plenty of quality opportunities remain.

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The inverted handle pattern forms when the asset emerges out and begins to fall from the right side of an inverted cup. However, a true inverted handle happens when it fails to break down and finally meets thesupport leveland attempts to break to a newer low. The cup and handle pattern can be found within a variety of time frames, from hourly, weekly to monthly charts.

It’s considered a bullish signal, indicating prices are rising, which offers opportunities to go long . The cup and handle formation time frames are approximately seven weeks to a year. It forms a handle https://www.bigshotrading.info/ in the upper portion of the cup but below the prior high. Once the price starts forming a handle we wait for a consolidation . Ideally, volume also contracts/drops during the consolidation.

Plan your trading

There are a couple of variations to this pattern that crypto traders need to be aware of. First, there are times when the handle portion of the pattern develops above the old high. This is considered the “high handle.” Secondly, since the market is fractal, these patterns will form on a variety of charting time frames, including intraday charts. Technical analysis focuses on market action — specifically, volume and price.

The pattern forms during as a result of consolidation a bullish movement and indicates a continuation of that bullish trend after its completion. A cup and handle is a technical indicator where the price movement of a security resembles a “cup” followed by a downward trending price pattern. This drop, or “handle” is meant to signal a buying opportunity to go long on a security. When this part of the price formation is over, the security may reverse course and reach new highs. Typically, cup and handle patterns fall between seven weeks to over a year. When it comes to taking profits, traders can use the greater pattern to inform exit positions.