Step #1: Identify a downtrend and a rounded retracement into that downtrend (The Cup)
We’re breaking down the Cup and Handle trading strategy into several steps. The first step is to identify an downtrend and a rounded retracement into that bearish trend. That rounded bottom is the first component of the Cup and Handle pattern.
The strength and the longevity of the prevailing trend is important as it will determine the success of the trade. How deep the rounded bottom goes will also influence our potential profit.
So far, so good.
Now we move to the second component of the Cup and Handle pattern and the second step of the Cup and Handle trading strategy.
Step #2: Draw the second component of the Cup and Handle pattern – The Handle
You can start drawing the handle once the cup component is finished.
Now, the cup component doesn’t necessarily need to end exactly at the same price where it started, but it needs to be near that price zone, or price target. Once you see the price moving away from the cup in a tight range you can start looking to draw the handle.
Step #3: Entry 1 at the Handle breakout and Entry 2 at the first Cup peak breakout
We’re going to implement an unorthodox entry method and split our trade into two trades as follows:
First sell entry on the Handle breakout, the lower line (resistance) that defines the Handle structure is our trigger line of the first sell order.
Second sell entry on the breakout of the initial peak from where we started drawing the cup.
Step #4: Take Profit equals the same distance in price as measured from the initial Cup peak to the bottom of the cup
The ideal profit target for the Cup and Handle trading strategy would be equal to the same distance in price as measured from the initial Cup peak to the bottom of the Cup.
The Cup and Handle pattern target maximizes the potential profit and it gives us the chance to capture the entire trend.
You are simply projecting the same distance in price to the upside using as a starting point the initial Cup peak.
Step #5: Place initial SL above the rounded bottom. After the second entry is triggered move both SL above the Handle swing low.
Since we’re splitting our trade into two trades, we’re going to have two protective stop loss. The initial stop loss is placed just above the round bottom.
Since at this stage the Cup and Handle pattern is not yet confirmed we need to give it more space, that’s why we’ve chosen to place the SL aabove the round bottom.
Once we enter our second sell order we can now safely move the SL for both positions above the Handle swing low.
We’re breaking down the Cup and Handle trading strategy into several steps. The first step is to identify an downtrend and a rounded retracement into that bearish trend. That rounded bottom is the first component of the Cup and Handle pattern.
The strength and the longevity of the prevailing trend is important as it will determine the success of the trade. How deep the rounded bottom goes will also influence our potential profit.
So far, so good.
Now we move to the second component of the Cup and Handle pattern and the second step of the Cup and Handle trading strategy.
Step #2: Draw the second component of the Cup and Handle pattern – The Handle
You can start drawing the handle once the cup component is finished.
Now, the cup component doesn’t necessarily need to end exactly at the same price where it started, but it needs to be near that price zone, or price target. Once you see the price moving away from the cup in a tight range you can start looking to draw the handle.
Step #3: Entry 1 at the Handle breakout and Entry 2 at the first Cup peak breakout
We’re going to implement an unorthodox entry method and split our trade into two trades as follows:
First sell entry on the Handle breakout, the lower line (resistance) that defines the Handle structure is our trigger line of the first sell order.
Second sell entry on the breakout of the initial peak from where we started drawing the cup.
Step #4: Take Profit equals the same distance in price as measured from the initial Cup peak to the bottom of the cup
The ideal profit target for the Cup and Handle trading strategy would be equal to the same distance in price as measured from the initial Cup peak to the bottom of the Cup.
The Cup and Handle pattern target maximizes the potential profit and it gives us the chance to capture the entire trend.
You are simply projecting the same distance in price to the upside using as a starting point the initial Cup peak.
Step #5: Place initial SL above the rounded bottom. After the second entry is triggered move both SL above the Handle swing low.
Since we’re splitting our trade into two trades, we’re going to have two protective stop loss. The initial stop loss is placed just above the round bottom.
Since at this stage the Cup and Handle pattern is not yet confirmed we need to give it more space, that’s why we’ve chosen to place the SL aabove the round bottom.
Once we enter our second sell order we can now safely move the SL for both positions above the Handle swing low.
Come learn a new trading strategy at tradingstrategyguides.com?utm_source=tradingview
Our free Telegram channel: t.me/TradingStrategyGuides
Our free Telegram channel: t.me/TradingStrategyGuides