Cup and Handle Pattern Trading Strategy Guide

Cup and Handle Pattern Trading Strategy Guide

cup and handle pattern time frame

We’ll talk about scanning for these patterns at the end of the article. My Complete Method Stock Swing Trading Course covers this pattern in-depth, with lots more variations and tips, plus other cup and handle pattern time frame strategies as well. The simplest stop loss point for this pattern is below the other side of the handle. I don’t get how you can use previous lows as a trailing stop loss if you are going long.

As mentioned, the chart formation’s cup element has well-defined resistance lines. The initial resistance line is at the top left of the chart, from where the initial correction begins, all the way to the bottom. This resistance line works as the support level of a prior uptrend, and once the asset starts dipping (forming the left side of the cup), the weaker hands start moving out. The best way to locate this is to identify the last instance of an uptrend and see how much the price moved — from a previous low to the start of the left side of the cup. Consider this move as the benchmark and see to it that the depth is less than 50% of the same.

Successful cup and handle pattern example trade in the stock market

If you have a conservative approach towards trading, consider placing the stop-loss below the lower trendline of the cup’s handle. And if you are willing to take the risk in a more volatile space, you can place the same below the cup’s bottom. The cup has two sides — the left represents the initial price decline, and the right represents the subsequent price recovery. For the sides to adhere to the cup and handle physiology, they should be relatively symmetrical.

So whenever you see a buildup of higher lows into resistance, it’s a sign of strength. Because this is a sign of strength telling you there are buyers willing to buy at these higher prices. Now, that’s fine if the price made a strong momentum move into Resistance and it gets rejected strongly. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018.

What Happens with a Failed Cup and Handle Pattern?

The cup and handle chart pattern marks a consolidation period in a stock followed by a breakout and suggests a continuation of the uptrend in a security’s price movement. The cup and handle chart pattern is a technical analysis trading strategy in which the trader attempts to identify a breakout in asset price to profit from a strong uptrend. As a well-defined pattern, the cup and handle pattern offers traders clear entry and exit points.

  • If you’re short, you want to exit your trades before swing low or Support.
  • A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.
  • If you’re long, you want to exit your trades before the swing high or Resistance.
  • At the high point, it achieves the price of Rs.90.5, recovering from the downtrend that started a few months prior.

must also be aware of, and prepared to comply with, the margin rules applicable to day trading. StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites. In addition,StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any useof this information. That’s why we designed StocksToTrade to have such incredible, easy-to-customize charts.

Do you already work with a financial advisor?

Now that we have a better understanding of the structure of the pattern, we are going to summarize some trade management ideas around this pattern. Let’s take a look at a potential Cup and Handle trading system and the rules we need to follow when trading this pattern. Then comes the handle, which is expressed by a bearish price move. In many cases, the handle is locked within a small bearish channel on the chart. In the end, security breaks out again, surpassing the cup depth at its lowest point. Wherever the height of the cup may be, add it to the measurement from the breaker point of the handle.

What is the cup without handle pattern?

A U-type shape characterizes the cup without handle: After an advance of weeks or months, the stock will change course and decline gradually. Then, it bottoms out and recovers. The main difference with its cousin, the cup-with-handle base, is of course the lack of a handle.