This is the exact turning point; you can validate the same by pulling out the volume chart. For a successful and clear cup and handle formation, the volume will start to be more buyer-friendly at this point. The anatomy of a cup and handle formation is crucial https://www.bigshotrading.info/blog/how-to-trade-rising-wedge-pattern/ as it allows you to identify the chart formation and plan a trading strategy accordingly. Also, this discussion regarding anatomy considers that a formation is already in. We are simply unpacking its components to learn the meaning of each element.

It shows the price found a support level and couldn’t drop below it. It helps improve the odds of the price moving higher after the breakout. Chart patterns, like a triangle, rectangle, head and shoulders, or—in this case—a cup and handle are a visual way to trade. what does a cup and handle chart mean The cup and handle pattern, also sometimes known as the cup with handle pattern was first identified by stockbroker William O’Neil in 1988. A Cup With Handle pattern is a bullish continuation pattern that marks a consolidation period followed by a breakout.

When To Buy Growth Stocks: Cup Without Handle Can Pour The Gains

Most serious technical investors set their buy points at the place where the stock’s value once again crosses the right side of the cup. But not every cup is fit for investing, even if you find one. Watch for cups that are longer and have a more u-shaped bottom (sharp V-shaped drops are not ideal). You also want to choose cups and handles that aren’t overly deep.

Cup and handle patterns are frequently misidentified as simple dips in the value of a security, but they’re actually a very specific pattern. Consider a scenario where a price has recently reached a high after significant momentum but has since corrected. At this point, an investor may purchase the asset, anticipating it will bounce back to previous levels. The price then rebounds, testing the previous high resistance levels, after which it falls into a sideways trend. In the final leg of the pattern, the price breaks through the resistance level, soaring above the previous high. Alternatively, wait for the price to close above the resistance trend line, connecting two highs of the cup, and enter a buy trade.

What does a Cup and Handle pattern indicate?

No offer to buy securities can be accepted, and no part of the purchase price can be received, until an offering statement filed with the SEC has been qualified by the SEC. An indication of interest to purchase securities involves no obligation or commitment of any kind. 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.

The price could increase slightly and then fall; it could move sideways or fall right after entry. You’ve identified a cup and handle pattern, but before you jump into the trade, you must wait for a handle to form completely. The handle often takes the form of a sideways or descending channel or a triangle pattern. When the price breaks out of the handle, the pattern is considered complete, and the price is expected to rise. The pattern is formed when the price of an asset forms a cup shape, followed by a handle smaller than the cup.

What Does a Cup and Handle Pattern Tell You?

However, if you look at the volume chart, the resistance breakout wasn’t supported by an increase in volume — a probable reason for the pattern failure. More aggressive buyers can enter when the bottom of the cup is in — provided that the asset is holding strongly to the key support levels near the bottom. A good strategy here would be to check for a bullish RSI divergence or a golden crossover to ensure that the bottom is in and the cup will move to the right. As the name indicates, the continuation pattern highlights the continuation of the current bullish or bearish trend after a brief pause. A good example of such a pattern is the bullish/bearish rectangle or the bullish/bearish pennant. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

The theory behind chart patterns is that investors tend to follow well-worn paths. A cup and handle is a technical analysis chart pattern that resembles a rounded bottom followed by a sideways movement or handles. The cup portion of the pattern is created when the price falls and creates a U-shaped bottom.

The pattern starts when a stock’s price runs up, then pulls back to form a cup shape. After that, a handle forms, which is a slight downward drift in the stock’s price. The cup and handle is considered to be a bullish signal in technical analysis. As a result of this behavior, investors generally see the handle as the place in which to buy. A stock’s price will dip while it is in the handle, but in a true cup-and-handle pattern this dip will not endure.

• However, it is more accurate when viewed on a higher timeframe — such as a daily, weekly, or even monthly chart.
• According to his book, this formation comes with the ability to help traders predict breakouts.
• When the price breaks below the handle, it signals traders to exit long positions or enter a short position.
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Like any other bullish pattern, even a cup and handle formation can experience a false breakout. This way, the resistance can break from the handle, trapping investors before going back to the bottom of the cup or even lower. The first thing that a trader should do, regardless of the bullish pattern, is determine the distance and the potential profit target.