Or you can consider this a breather taken by the buyers to shake out the weak hands. The handle is a sloping consolidation that should Cup and Handle Pattern be restricted to the upper half region of the chart. It feels like a breather taken by the buyers before continuing the upmove.

For example, if a cup forms between $99 and $100, the handle should form between $100 and $99.50, ideally between $100 and $99.65. If the handle dives too deep and erases most of the gains of the cup, you should avoid trading the pattern. That means the asset’s price, which is trending lower to form the handle, should not drop to level of the lower https://www.bigshotrading.info/ half of the cup. Ideally, the price should stay within the top 1/3rd of the height of the cup. Remember, the handle usually begins with a down day in price, and can morph into a base of its own in certain cases. That’s not a problem; it’s often a stock’s way of offering a buy point that’s clearer or lower than that suggested by the larger pattern.

Limitations of the Cup and Handle

When properly interpreted, patterns such as the Cup and Handle provide valuable insight into future market behavior. As a well-defined pattern, the cup and handle pattern offers traders clear entry and exit points. Once you have identified the depth of the cup — preferably by ascertaining the shift in volume — you can identify price targets by tracking the multiple resistance levels. Also, the resistance line formed by the handle can indicate the breakout zone for the asset.

• Finally, the cup and handle formation is relevant across timeframes.
• It will draw real-time zones that show you where the price is likely to go in the future.
• The above is another example of a cup and handle pattern, but in the reversal pattern, which was formed in the ETH/USD daily chart.
• While the price is expected to rise after a cup and handle pattern, there is no guarantee.
• The daily and weekly charts at both Investors.com and MarketSmith make heavy turnover easy to spot.

Once you spot a chart with a Cup With Handle pattern, it’s best to wait for price to break out of the handle before entering a long position. But before you do, make sure that trading volume is strong. This confirms that price will follow through to the upside.

Limitations of the Cup and Handle Pattern

The handle shows price consolidation happening before a price breakout occurs. If you look at the regular cup and handle pattern, there is a distinct ‘u’ shape and downward handle, which is followed by a bullish continuation. This means the inverted cup and handle is the opposite of the regular cup and handle.

• The standard cup and handle pattern is a bullish signal, but there is also a bearish version of this pattern called “Inverse Cup and Handle” pattern.
• If institutions are holding on to the stock, it won’t fall too far.
• Once the cup forms, the stock price pulls back, forming a “handle” out to the right of the cup.
• If you are studying a price action, you should definitely know Cup and Handle formation.
• For instance, if you are in the market for a short-term price movement, you can look at this chart pattern in a 1-hour or a 4-hour timeframe.
• This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealeror an investment adviser.
• It helps improve the odds of the price moving higher after the breakout.