This is a bullish pattern that was developed by William O’Neill, who wrote about it in a book he published in 1988. Useful guide, it’s definitely a pattern to always be watching for. Cup and Handle Pattern You can watch the video on the pre-breakout as I believe it’ll answer your question. I’ve just come across your work – since last week’s online trading summit – and it’s outstanding.

• A stop-loss order gets a trader out of a trade if the price drops, instead of rallying, after buying a breakout from the cup and handle formation.
• While the price has already moved a lot, the cup and handle pattern attempts to capture upside movement following an upside breakout from the handle.
• The Keltner Channel or KC is a technical indicator that consists of volatility-based bands set above and below a moving average.
• This is a situation where you place a buy-stop order above the resistance.

Handles are relevant to all financial markets, but mean different things depending on the asset. When it comes to trading, the term “handle” has two meanings, depending on which market you are… The information in this site does not contain https://www.bigshotrading.info/ investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.

Factors to Consider in Assessing Pattern Strength

The price reached an all-time high of $1920 on September 2011. A good example of cup and handle pattern at work is to look at the long-term chart of gold. What should you do if volume on breakout day is much lighter than usual? Sometimes volume will pick up in the next few sessions. Light volume in the market in general may also be a factor.

There are times when the market is extremely bullish and the handle pushes slightly above the old high but remains within 10% of it. The cup and handle pattern cannot exist without a prior uptrend. As a result, the pattern is found frequently within the crypto market. The pattern is confirmed when prices break above the high of the handle as the previous uptrend continues. There are many different types of trading patterns that traders can study to help them make better investment decisions so they benefit from trends in the market.

Recognizing Cup and Handle Patterns

Then, during the formation of the handle, trading volume will ideally shrink as both buyers and sellers are shaken out. Now that prices are near their old high, bullish traders stop buying and wait to see if a breakout takes place. Traders who bought near the old high are thankful and nervous at the same time. They are thankful that prices have rebounded back to the old high, but nervous about another selloff. Hence, selling the asset gradually, creating the handle (#4). The handle can be either a small, unorganized pullback, or a bear flag or pennant. In any case, the handle should retrace less than 1/3 to 1/2 the depth of the cup – the shallower the retracement, the more bullish the movement following a breakout should be.

• This includes drawing trendlines for the handles to highlight the breakout points, notes to mark important areas, or arrows to highlight potential entry and exit points.
• The combination could be a cup & handle, a potentially bullish continuation pattern based on the previous uptrend.
• At that level, traders who bought the stock near the previous highs are likely to sell, causing a gentle pullback.
• The handle forms when the price stalls and ranges sideways before heading upwards again.
• The pattern is confirmed when the market breaks above the highest price of the handle.
• 1hr 20,50,100 and 200 EMA getting tight together with a bull pennant on 1hr.

1hr 20,50,100 and 200 EMA getting tight together with a bull pennant on 1hr. The best example of a historical cup and handle pattern is the stock market as the US exited the Great Depression. The cup lasted nine years, the handle four years, and the stock market hit the arithmetic target in four years and log target in over five years. The creation of the cup and handle formation occurs when a stock price falls but then moves back up to the point where the decline began. The entry point for a cup and handle pattern is to buy when the price moves above the handle formation. This is made simpler by using a drawing tool and waiting for the price to move up and out of the drawn handle pattern. A stop-loss can be placed below the low price point in the handle.

Trading Strategies

This includes drawing trendlines for the handles to highlight the breakout points, notes to mark important areas, or arrows to highlight potential entry and exit points. We also offer a chart scanner with pattern recognition software that works automatically to detect and highlight trends for your ease of trading. A cup and handle pattern is formed when there is a price rise followed by a fall.