Cup And Handle Pattern
Or, you can wait for the breakout and then enter near the close of the day if it was a strong breakout with a nice volume increase. The stop loss goes below the low of the breakout day with that last approach. A half-cup is when the handle occurs in the upper half of the cup but below the prior high. But the point is that you need to define exactly how the handle will look, and at what point you will trade it. The price can be quite choppy while forming a handle, so if you don’t have precise rules, you will have more losing trades.
That’s why we designed StocksToTrade to have such incredible, easy-to-customize charts. You can add in lines for support or resistance, use technical indicators, easily export to review later, and so much more. A good entry would be when the price cup and handle breaks above the top of the descending trendline. The best place to enter a trade using this pattern is when the handle forms. If the pattern is successful, there’s a good chance for another breakout after the stock passes the cup’s previous high.
How To Use Moving Average And Ride Big Trends
First, the downturn indicates investors moving off of a stock that had been growing, often for fear of an overvalued asset or to book gains. Ross Cameron’s experience with trading is not typical, nor is the experience of students featured in testimonials. Becoming an experienced trader takes hard work, dedication and a significant amount of time. However, you will face the risk of missing the trade if the price fails to pullback and continues to advance uninterrupted. IBD Videos Get market updates, educational videos, webinars, and stock analysis. A version of this column was first published in the July 9, 2010, edition of IBD.
When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with. A rounding top is a chart pattern used in technical analysis which is identified by price movements that, when graphed, form the shape of an upside down “U.” A rounding bottom is a chart pattern used in technical analysis that is identified by a series of price movements that graphically form the shape of a “U.” A fibonacci series is a technical chart pattern that resembles a cup and handle where the cup is in the shape of a “u” and the handle has a slight downward drift.
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The stop-loss represents the risk portion of the trade, while the target represents the reward portion. 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 half-way point of the cup.
What does a handle mean in trading?
A handle is the whole number part of a price quote, that is, the portion of the quote to the left of the decimal point. For example, if the price quote for the stock is $56.25, the handle is $56, eliminating the value of cents in the quote.
Once the breakout happens, the price and volume is expected to surge, which would make it more challenging to enter a position, hence it is recommend to take a position before that. In addition, the cup phase might last a really long time, and may not lead to a handle. However, during the cup phase, the odds are 50-50, and there is no real edge, because the market is still sideways at that point of time. By this time, the bulls have the upper hand as they have been accumulating positions during the cup formation, which in turn attracts more buyers.
Cup And Handle Chart Pattern Explained
Once the handle downtrend has run its course, the price of the security is expected to make a significant breakout through the resistance level of the previous highs. Traditionally, the cup has a pause, or stabilizing period, at the bottom of the cup, where the price moves sideways or forms a rounded hammer candlestick bottom. It shows the price found a support level and couldn’t drop below it. It helps improve the odds of the price moving higher after the breakout. Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks.
Here is another example of a scan I may run when the S&P 500 is within about 15% of its highs. This one is a little looser in that it still finds stocks that are further off their highs and maybe have been moving sideways for a while (no 1-month return criteria). Instead, some longer-term strength criteria are added in, such as stocks need to be strong in their own sector . The limit portion controls the price paid in case there is gap higher or very little volume until a much higher price. Price breaks above the consolidation to trigger a long trade. Volume ideally drops off during the consolidation or at least has one or more really low volume days .
Cup And Handle Trading Strategy
It should not drop into the lower half of the cup; it should stay in the upper third. The pattern can be seen in both small timeframes, like a one-minute chart, and in big time frames, such as daily, get a trade weekly, and monthly charts. It occurs when there’s a wave down of price, followed by a period of stabilization, and then followed by a rally of approximately equal size to the prior decline.
A cup and handle is considered a bullish signal extending an uptrend, and is used to spot opportunities to go long. According to Bulkowski , the averaged maximum decline of the inverse cup and handle is 16%. Some traders recommend placing stop orders right beneath the upper third of the cup for the best risk to reward levels. When looking to identify if the pattern is broken, a trader would want to keep a close eye on the consolidation pattern that is forming at the handle. The stop loss aims to control risk to the trader in the event that the trading pattern is invalidated. Now, a stop-loss order gets a trader out of a trade if the price drops instead of heading higher after the breakout occurs.
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Price moves up again and forms a consolidation in the middle to upper portion of the triangle . If the consolidation is taking up most of bullish chart patterns the triangle, which is now quite narrow, that is also fine. The consolidation can also form just above the top line of your triangle.
As the stock once again tests its highs, another pullback – the handle – is observed, but this time bullish investors are able to push the stock higher as they snap up discounted shares. The cup and handle pattern is a bullish continuation pattern that consists of two parts, the cup and the handle. The cup typically takes shape as a pull back and subsequent rise, with the candlesticks in the center of the cup giving it the form of a rounded bottom. The handle is made up of downward-sloping price action that soon breaks out above the upper resistance line to indicate the continuation of the original bullish trend. Traders use this visual pattern to spot trends in the market and make trades based on the pattern. This type of pattern offers a logical entry point as well as a stop-loss location .
Bearish Cup And Handle Trading Example
If you’re looking for a trading platform, check out StocksToTrade. Traders of all levels will love our charts, built-in scans, watchlist capabilities, and so much more. Every day we provide members with mentorship, webinars, chat, trading education, and community. It’s all so you can ask questions, get answers, and find your market groove.
In that case, an exceptional growth stock can fall 40%, 50% or more and still make a successful breakout. The cup should form smoothly, without major price declines on the left side. Sharp gains on the right side aren’t necessarily good, either. You might think that the opposite of a panic-driven exit would be a good thing.
Now you have another chart pattern in your tool belt to study. The cup and handle is one of the classic patterns that every trader should know. The bottom of the cup is a stabilizing period where the price moves sideways. This means that the price found a good support level that it couldn’t drop below for some time. That can provide traders with a strong point to set a stop loss.