Succesfully Trading a Cup and Handle Pattern

Cup and handle pattern is a candlestick formation on stock or crypto chart signaling an upward price movement. It is a visual pattern and represents a “U” shape along with a handle. The pattern occurs after a price increase or decrease and indicates an upcoming uptrend.  Investors can easily locate this pattern on a chart and mark their profit targets.

The cup and handle pattern has a proper entry with low risk and is an excellent strategy to make quick profits.  The formation works best in a daily or four hourly charts. It takes time to form such a pattern but is of immense benefit for the traders.

As its name suggests, the cup and handle candlestick represents a chart, depicting a cup along with its handle. The pattern starts with a gradual price decrease, after which the price consolidates at a particular range. Afterward, the price begins to increase, testing the previous resistance, forming the cup.

cup and handle pattern

Keynotes on Cup and Handle Cup Chart Pattern

  • A cup and handle pattern is a visual formation on stock or Cryptocurrency chart and is not a fundamental indicator
  • A cup represents a cup with a “U” shape, and the handle has a slight downward drift
  • Cup and handle formation is a bullish indicator and is a good opportunity to open a long position or place buy orders

How the pattern comes into creation?

Cup and handle chart pattern results from price consolidation and positive market sentiments. It signals a bullish takeover of the stock or Cryptocurrency market. The pattern starts with bears pushing the price to newer lows. There are big red candles which serve as the start of the cup and handle formation.

The bulls keep pushing the price until it gets into oversold territory, and indicators start signaling a reversal. Price consolidation takes place, and buyers accumulate the stock or Bitcoin to book profits on the incoming leg up. After a brief consolidation, the price begins to move upward and test the previous resistance.

However, the bulls fail to break the resistance, and traders start to sell their stake, pushing the price towards a handle formation. The handle is like a falling wedge or descending triangle formation attached to the cup. Together with the cup, it signals a bullish takeover of the market and is extensively used by traders to judge the price movement.

Cup and handle technical analysis in practice

Cup and handle breakout is a common occurrence during positive market sentiments. They are easy to spot and confirms that bulls are totally in control of the market. Below is the chart of Litecoin to Bitcoin trading pair showcasing the cup and handle candlestick formation.

LTCBTC-cup-and-handle-chart-pattern

 

The Cup and Handle Breakout and Target

When using the cup and handle technical analysis, a trader can easily spot the target price. The cup and handle breakout price target is the distance from the bottom of the cup to the resistance area. The chart below shows the pattern with the target price. Look closely at how the price reaches all of our targets.

Cup-and-handle-target-formation-technical-analysis

 

Inverted Cup and Handle

An inverted cup and handle pattern is a bearish indicator and signals a potential downtrend. The reverse cup and handle candlestick is useful to exit the market or open a short position. Inverse cup and handle usually occur after the price reaches new highs. The traders can easily spot the pattern on forex or Crypto charts, although it is a rare occurrence.

The inverted cup and handle pattern looks like an inverse “U” shape along with a handle formation. The upside-down cup and handle have a high success rate, and traders usually use it along with the Relative Strength Index (RSI) and On-Balance-Volume (OBV) indicators. The pattern takes two to four months to develop on a daily chart but can also be useful in a low time frame.

How Reverse Cup and Handle come into formation?

The basics of an inverted cup and handle chart pattern rely on the fact that the price fails to break the resistance or goes in oversold territory. The formation signals bearish takeover of the commodity or Cryptocurrency. The reverse cup and handle pattern starts with an uptrend price movement until it reaches a resistance level. The bulls fail to break the neckline, and the price starts to consolidate at a specific price range.

The occurrence of Doji candles during consolidation is the norm, and sellers usually take profits at this time. Gradually, the price starts to fall, making newer daily lows. The bears take over the market, pushing the price towards the previous support area, hence forming the cup.

The new buyers see the bottom out price as an opportunity to make a profit and place buy order. RSI, at this point, is usually 30%-40% suggesting an advantageous situation for the traders. With the fresh flow of money into the market, the price rises in a handle pattern. However, bulls fail to make new daily highs and eventually suffer at the hands of sellers. The price falls, breaking the support channel and starts a downtrend.

Inverted cup and handle pattern in practice

The inverse cup and handle cup and handle pattern is a rare occurrence, because of bearish reversal indicator that takes over the market. However, it has a high success rate and works well after formation. Below is a chart of Ethereum to Bitcoin from TradingView and depicts the inverted cup and handle pattern taking place on the four-hourly chart.

ETHBTC-reverse-or-inverted-cup-and-handle-pattern

 

In Conclusion

Cup and handle pattern is one of the most effective trading strategies. The cup and handle technical analysis are easy to use, and it has assisted thousands of traders to benefit from the situation. However, traders should also be cautious while using this pattern. There might be instances where an irregular formation might look like a cup when this might not be the case.

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