The strategy captures consistent and often explosive price moves/profits. The pattern is easy to find and trade, although there are some very specific traits you will want to look for.
However, some traders make the mistake of assuming that once a U-shape forms, the price will drop to form a handle. It may not, so you should ideally avoid trading the pattern until it has fully formed, in order to confirm the trend. You could wait for the price to break above the handle to signal that the uptrend is continuing.
Volume On The Breakout
Day trading an inverse cup and handle pattern can be very profitable if you know what you’re doing. The breakout has significance, as it would cross weekly EMA30, and cup and handle neckline.
- The next time you come across a potential cup and handle pattern, use our simple 10-step checklist above to verify the pattern is valid .
- It then finds some support and moves upwards again and finds resistance around the 50% retracement.
- In this example, the breakout point was $1.705, and the price target will be the depth of the cup.
- There isn’t a stock scanner setting you can use to find a cup and handle pattern, but the pattern is easy to recognize visually.
- The cup and handle is a bullish continuation pattern that marks a consolidation period followed by a breakout.
Looking to see this one play out over a 7 day time frame. Be aware that the handle itself, which must stretch for a minimum five trading sessions, 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. Handles are relevant to all financial markets, but mean different Cup and Handle Pattern things depending on the asset. When it comes to trading, the term “handle” has two meanings, depending on which market you are… The price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point. Determine significant support and resistance levels with the help of pivot points.
Example Of A Failed Cup And Handle Pattern In Forex
The handle can develop over one week to several months on a daily chart, although ideally completes in less than one month. This technical indicator works flawlessly https://www.bigshotrading.info/ with the bearish cup and handle formation. You won’t see it quite often on weekly and daily charts, but you can spot it easily on shorter timeframes.
- The cup is a bowl-shaped consolidation and the handle is a short pullback followed by a breakout with expanding volume.
- The inverted cup and handle pattern consists of an inverted cup and a handle.
- With derivatives trading, you don’t own the underlying asset, which means you can go long or short .
- For the lowest-risk entry point, set a buy stop for entry above the high of the handle.
- It’s important to close your short position quickly, as you know the “handle” will form soon.
Commodity and historical index data provided by Pinnacle Data Corporation. Unless otherwise indicated, all data is delayed by 15 minutes. The information provided by StockCharts.com, Inc. is not investment advice. Trading and investing in financial markets involves risk.
Cup And Handle Pattern Trading Strategy (Backtest And Example)
The right side of the handle rises higher than the left and the pattern slightly overestimates the extent of the bullish continuation after the breakout. Cup and handle patterns form as the result of consolidation after an uptrending stock tests its previous highs. At that level, traders who bought the stock near the previous highs are likely to sell, causing a gentle pullback. This pullback is then met with bullish activity, which causes the rounded bottom and rise of the right side of the cup. 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. Inverted cup and handle patterns are also possible during downtrends and signal bearish continuations. In this case, the cup shape is inverted such that it represents a resurgence in price after a downtrend followed by a downward movement.
The point is simply to find stocks that are performing better than average , and eliminate stocks from the list that aren’t strong. This scan is one way to do it, but really any method that finds stocks that are stronger than average is fine. Whatever the index is up in the last 6 months, this criteria should be more…usually about double. For example, if the S&P 500 is up 3% in the last 6 months, look for stocks that are up 6%+ over the same time frame. Any scan that looks for stocks with recent upward momentum should be able to find these patterns. Then, manually go through the results looking for the pattern and specific traits discussed. Notice, with the scanning method covered below, I’m only looking at stocks that have outperformed the S&P 500.