WHAT IS CUP AND HANDLE FORMATION

In the traders' job the chart patterns indicating price changes are of great importance. This includes the "Cup and Handle" formation. A cup and handle is a popular chart pattern among technicians that was developed by William O’Neil and introduced in 1998.

What does the pattern look like?
"Cup with handle" is the term chosen because of the undeniable similarity between this type of dishes and what the trader sees on the chart. It is hard to judge how much this pattern is in demand among traders, because there are more practical interest formations.

Cup
The formation of a bullish trend is considered as an important condition that leads to the formation of such a position. Although experts consider it to be a reversal. "Cup with a handle" is formed at the moment when the correction of the previous rising direction of the chart takes place. At the same time, the trader should definitely pay attention to the depth of the chart.

It is of interest if the formed slope does not exceed 80% of the trend that was before the formation of this specific pattern. The bottom of the formed bowl meets the period of price consolidation, upon its completion the ascent begins.

Handle
The handle on the chart means nothing else than the correction of prices in relation to those that were at the time when the right side of the cup was formed. Trades compare this section not so much to a pen as to a flag. Of interest is the situation when the flag begins to form immediately after the end of the formation of the right side of the cup. The length of the handle created by the chart should not exceed 50% of the size of the right side of the cup.

The formation of this part of the graph takes quite a long time. The long-time interval indicates the subsequent formation of the trend. This section of the chart becomes fully complete only after the resistance level is broken.

If we look at what we see on the chart from a practical point of view, we can say the following: when the left part of the cup is drawn, there is a gradual decline in prices, at the time of formation of the bottom they remain stably low, and during the creation of the right part there is a gradual increase in prices. At the moment of the breakdown a sharp increase in the number of trades is observed.

How to trade the chart pattern on Forex
Aggressive
Conservative
Regular

Each of them has its own positive and negative characteristics. Low demand among the used Forex methodologies is caused by the fact that it requires taking into account a large number of indicators, otherwise the probability of making a mistake is very high. Particular difficulties may occur in the analysis of the depth and width of the chart figure. The probability of missing a profit when working with this type of chart is rather high.

Aggressive method
It is considered riskier. It is based on the behavior of the handle. The orders should be started after the breakout of the handle or, using another terminology, the breakout of the flag. In this case the "stop" position is placed below the level that the breakout of the candle.

Regular Method
The regular approach to trade positions are opened immediately after the breakdown of the pattern line. Stop-loss should be placed below the handle, that is, below the line involved in the formation of resistance.

Conservative method
It is used most often. It is based on the classical traditions of trading. Attention is paid to the breakdown of the technical line. The ideal variant is entering after the retest of the breakout line. The stop-loss should be below the handle or below the "breakout" candle from the breakout line (at least if it is big enough).