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. The handle should also show a downward slope along at least a portion of its price lows, cup and handle pattern time frame not an upward one. This is why sifting through the charts of the market’s greatest winners is time well worth spent. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.

In most cases, the handle should not dip below the top third of the cup for it to be a cup and handle pattern. Therefore, profit depends on how a strategy is implemented and traded, and will vary by trader. Place a buy stop limit order a few cents above the consolidation to go long when the price moves above the consolidation (which is near the upper portion of the handle usually). This order is set prior to the breakout, but after the consolidation has formed.

Cup and Handle Stop-Losses and Profit Targets

An additional option is to stay in the trade as long as the price is trending in your favor. You may not want to completely exit the trade, where the price move is offering more potential to add profit to your trade. Thus, you can watch for price action https://www.bigshotrading.info/blog/how-to-trade-options/ clues in order to extend the gains from the trade. As we point out earlier, you would prefer to open a trade after confirming the Cup with Handle pattern. If the pattern is bullish, the signal should be a bullish breakout through the handle.

Traders look for a strong volume increase to confirm the breakout. After the breakout, you can expect to see a long upward price trend that lasts anywhere from several weeks to several months. The cup and handle chart pattern is considered reliable based on 900+ trades, with a 95% success rate in bull markets. As with most chart patterns, capturing the pattern’s essence is more important than the particulars.

Cup and Handle chart pattern: How to capture a swing for consistent profits

For example, if the cup has a depth of $10, then the price target should be set at $10 above the breakout level. This will provide a high probability exit point with a healthy potential for profit. Additionally, traders can use a trailing stop loss to protect their profits if the stock reverses direction due to outside influences. As a general rule, cup and handle patterns are bullish price formations. The founder of the term, William O’Neil, identified four primary stages of this technical trading pattern.

Finviz is a good free pattern scanner, whereas TrendSpider enables full backtesting, scanning, and strategy testing for chart patterns. When a cup and handle pattern fails, the stock price falls below the neckline support and continues to decline or consolidate sideways. Proper risk management is essential to limit losses on failed patterns.

What Does Cup and Handle Mean?

SpeedTrader does not guarantee the accuracy of, or endorse, the statements of any third party,
including
guest speakers or authors of commentary or news articles. All information regarding the likelihood of potential
future investment outcomes are hypothetical. A good entry would be when the price breaks above the top of the descending trendline. A proper handle forms in the upper half of the base and is at least five trading days long, typically light in volume. Yep, this is a bullish pattern and can be a technical indicator for traders of a potential upcoming breakout. By learning to recognize them in real time, traders can limit their risks by determining the best points for entry and exit.

• The reasoning behind this explanation is that the breakout move requires strong volume after the necessary quiet period to form both the cup and the handle.
• The target for the handle and cup pattern can be estimated by measuring the depth of the cup and projecting it upward from the breakout level.
• It’s often described as a side or descending channel or a triangle.
• The price could increase slightly and then fall; it could move sideways or fall right after entry.
• If a cup and handle forms and it is confirmed, the price should see a sharp increase in the short- to medium-term.
• For the lowest-risk entry point, set a buy stop for entry above the high of the handle.

Every chart you review in TradingView will automatically be scanned for a cup and handle pattern, and you can run backtests on the pattern. If you ask me, it’s when the price breaks below the low of the handle, thereby invalidating the Cup and Handle pattern. The good thing with a buy stop order is your entry will just be above the highs of the “handle”, and if the breakout is real, that’s one of the best prices to get in. The best cup and handle patterns have a shallow retracement on the handle (not more than 1/3 of the cup). Now, A cup and handle invalidation would be if you see a large sell-off from Resistance, as it tells you the market is not ready to head higher. If you’re day trading, and the target is not reached by the end of the day, close the position before the market closes for the day.

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