There is an increase in volume at this stage as the U-shaped bottom gives way to an uptrend, creating the second edge of the cup. This chart pattern is considered a bullish signal as the right-hand side of the cup and handle pattern experiencing lower trading volumes. The formation of this pattern usually ranges from seven weeks to 65 weeks, depending on the asset and time frame you are using. The handle and cup pattern is a bullish continuation pattern that signifies a temporary pause in an ongoing uptrend before the price resumes its upward movement. The pattern is named after its shape, which resembles a cup with a handle. It is typically formed over a more extended period, indicating a period of consolidation or accumulation before a potential breakout.

Opponents of the V-bottom argue that prices don’t stabilize before bottoming and believe the price may drop back to test that level. But, ultimately, if the price breaks above the handle, it signals an upside move. A V-bottom, where the price drops and then sharply rallies, may also form a cup. 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.

How to Easily Trade the Cup and Handle Pattern?

Ask a question about your financial situation providing as much detail as possible. Your information is kept secure and not shared unless you specify. There is no one perfect solution for everyone, so it’s important to find strategies that fit your personality and risk tolerance levels. The cup-and-handle pattern isn’t always reliable and should not be used in isolation. If seeking an early point, then be sure to enter with partial share size to minimize risk.

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Step Checklist: How to Properly Identify a Cup and Handle Pattern

Past performance of a security or strategy does
not guarantee future results or success. This is for informational purposes only as StocksToTrade cup and handle pattern time frame is not registered as a securities broker-dealeror an investment adviser. My top stocks to watch in August 2023 aren’t investment vehicles.

• The founder of the term, William O’Neil, identified four primary stages of this technical trading pattern.
• StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites.
• This is the hourly chart of the USD/CAD Forex pair for March 25-30, 2016.
• 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.
• If the price reverses and declines after the pattern is confirmed, it is considered bearish, and the pattern has failed.

The stop loss order of the trade needs to be placed above the handle. Its location is shown with the red horizontal line on the chart. You might notice that the cup’s left side is slightly shorter than the right. If you want to be conservative with your predictions, make your target-marking point that https://www.bigshotrading.info/blog/9-day-trading-mistakes-that-will-ruin-you/ same distance from the side. For example, suppose Bitcoin was currently trading at $6,000, and you wanted to set a stop-loss at $5,000 as soon as Bitcoin falls below $5,000 for any reason. In that case, the exchange automatically closes your trade, and all losses will be limited to around 10%.

What is Cup-And-Handle Pattern?

Since the handle must occur within the upper half of the cup, a properly placed stop-loss should not end up in the lower half of the cup formation. The stop-loss should be above $49.75 because that is the halfway point of the cup. Now let’s demonstrate the bullish and the bearish Cup and Handle strategy in action. The examples below will help clear out any questions you may have related to trading the Cup and Handle pattern in Forex. Assume a stock recently hit a high after strong momentum but has declined almost 50%. At this point, investors might consider purchasing the stock, predicting it will bounce back to the previous levels.

Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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