Principles to Trade Cup & Handle Pattern
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We are glad to share this material on "CUP & HANDLE PATTERN".
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. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.
The theory behind the cup and handle pattern is that if the price tried to drop but then rebounded, there must be strong buying momentum behind the asset to continue moving higher. This could attract traders to open a position at the price rise, or at least avoid opening a short position against it.
How this Pattern works?
1. The cup should resemble a bowl or rounding bottom. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case.
2. After the high forms on the right side of the cup, there is a pullback that forms the handle. The handle is the consolidation before breakout and can retrace up to 1/3 of the cup's advance, but usually not more.
3. The cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over 1-4 weeks.
4. The buy point occurs when the stock breaks out or moves upward through the old point of resistance (right side of the cup).
5. The price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point. This should be used only as a guideline.
However, we have also seen the failure of Cup & Handle Pattern in the real trades. For example, EURUSD in June 2020 (15 mins Time Frame) showed exactly the opposite story; expectations were for higher side but it could not give a breakout and the price fall drastically.
Inverted Cup & Handle Pattern:
The reverse cup and handle pattern is an upside-down cup followed by a handle and a breakout to the downside. It represents a bearish continuation pattern. The pattern is formed by a drop, a rally, then another drop back to where the rally started. A handle forms, which should be less than a third the size of the cup.
Important Point!
Some traders make the mistake of assuming that once a U-shape forms, the price will drop to form a handle. It may not, so one should ideally avoid trading the pattern until it has fully formed, in order to confirm the trend.
If You Like this idea or have any suggestion, please do comment.
Thank you !
We are glad to share this material on "CUP & HANDLE PATTERN".
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. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.
The theory behind the cup and handle pattern is that if the price tried to drop but then rebounded, there must be strong buying momentum behind the asset to continue moving higher. This could attract traders to open a position at the price rise, or at least avoid opening a short position against it.
How this Pattern works?
1. The cup should resemble a bowl or rounding bottom. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case.
2. After the high forms on the right side of the cup, there is a pullback that forms the handle. The handle is the consolidation before breakout and can retrace up to 1/3 of the cup's advance, but usually not more.
3. The cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over 1-4 weeks.
4. The buy point occurs when the stock breaks out or moves upward through the old point of resistance (right side of the cup).
5. The price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point. This should be used only as a guideline.
However, we have also seen the failure of Cup & Handle Pattern in the real trades. For example, EURUSD in June 2020 (15 mins Time Frame) showed exactly the opposite story; expectations were for higher side but it could not give a breakout and the price fall drastically.
Inverted Cup & Handle Pattern:
The reverse cup and handle pattern is an upside-down cup followed by a handle and a breakout to the downside. It represents a bearish continuation pattern. The pattern is formed by a drop, a rally, then another drop back to where the rally started. A handle forms, which should be less than a third the size of the cup.
Important Point!
Some traders make the mistake of assuming that once a U-shape forms, the price will drop to form a handle. It may not, so one should ideally avoid trading the pattern until it has fully formed, in order to confirm the trend.
If You Like this idea or have any suggestion, please do comment.
Thank you !