Cup and Handle Chart Pattern: How To Use It in Crypto Trading

That’s when the support line is broken, and prices must close below this level. In this example, the breakout point was $1.705, and the price target will be the depth of the cup. The pattern is considered valid when a downward breakout occurs and the price closes below https://www.bigshotrading.info/ the support or neckline. To get an added layer of confirmation, you can look for confluence with with tools and methods, such as support and resistance levels. That small pause gives us a good low risk opportunity to get into the trade to ride the next wave of uptrend.

The more “U” shaped the cup bottom is, the stronger the signal. A secondary correction occurs, with price falling +/- 50% from the peak at . This is high – cup and handle corrections normally vary between 10% and 30%. The cup commences with a new peak , formed after a strong up-trend. Target 2 – equals the vertical size of the cup applied at the moment of the breakout through the handle. The Cup with Handle confirmation comes when the price breaks out of the handle. As with most if not all patterns, a stop loss is needed when you trade the Cup and Handle price pattern.

How To Trade the Cup and Handle Chart Pattern

Theoretically, only the selling to satisfy the people who want to get out near the previous high needs to take place. But if the stock drops below the midpoint of the cup, it is a warning that more selling is taking place than simply a handful of panicky holders. It is not unlikely, and perhaps common, for 2 handles to form, so anticipating the breakout and entering a position early is not a good idea. This is healthy for the stock and is simply an indication that a little more “work” is needed to allow the weak stockholders to get out. The same breakout requirements govern as with other breakouts. Volume must surge to validate the breakout, and appropriate stops shall be implemented if volume is not satisfactory. There are two guidelines a trader can use to determine the expected price movement upon breakout.

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 cup and handle reversal selloff. Hence, selling the asset gradually, creating the handle (#4). The price may drop slightly, then rally back up, forming another handle or breaking above the initial handle. There is also an upside-down cup and handle pattern, called the inverted or reverse cup and handle.

Markets

Examples of common reversal patterns in technical analysis include head and shoulders, double bottoms, and bump-and-run patterns. In this article, you’ll learn how to trade the inverted cup and handle step by step so that you can maximize your profits while minimizing your risks. Once the cup and handle pattern is identified, you can use the completed pattern to do a price projection, which can serve as a good estimate for a target profit for your trade. For trading, we would look to enter during the handle formation, which would be very close to the resistance level. No one can explain how to trade cup and handle pattern better that way you have explained in this short article. A V-bottom, where the price drops and then sharply rallies, may also form a cup. Some traders like these types of cups, while others avoid them.

• If the pattern is bearish, take the two bottoms of the cup and stretch a curved line upwards until the rounded part reaches the top of the pattern.
• There are two guidelines a trader can use to determine the expected price movement upon breakout.
• Note the large bearish move on the chart following the breakdown.
• The cup commences with a new peak , formed after a strong up-trend.
• Unless otherwise indicated, all data is delayed by 15 minutes.

Inverted cup and handle patterns can be identified by their large crescent shape followed by a less extreme, upward retracement. The entire pattern usually takes within 3 to 6 month to develop. These patterns are meant to serve as being indicative of a bearish reversal.