The Cup And Handle Swing Trading Strategy

As a day trader, if you don’t reach the target by the end of the day, it is best to close the position before the end of the trading hours. A cup and handle pattern is a pattern used in forex and other financial markets trading. This trading pattern looks like a cup with a handle, with the cup taking the ‘u’ shape and the handle having a slight downward drift.

Background – ‘classic’ price action in a steady uptrend – also seen with price in a downtrend 1. Start with a left side ‘rim or lip’ representing price hitting an area that cannot be supported. The reaction starts a breakdown of price with strong volume initially which creates a steep descent creating the left side to the cup.

Of course the pattern has its bearish equivalent, the Inverted Cup and Handle, which we will touch upon later as well. This pattern occurs by drawing trendlines, which connect a series of peaks and troughs. The trendlines create a barrier, and once the price breaks through these, a very sharp movement in price follows.

Volume Volume plays an extremely important role in price patterns; price movements on low volume tend not to sustain themselves. At breakout, the minimum volume typically looked for is that which is 50% above the 50-day average volume. Price Target Once the breakout takes place, you can project the upward price move by measuring the distance between the right peak, or high, of the cup to the bottom of the cup. Now I show you an example where the price breaks above the handle resistance and goes up strongly. This is something that is more expected when a cup and handle forms on the chart. In most cases bulls will take the control after the formation of the handle and the price will go up after the handle resistance breakout.

Dont Make This Common Mistake When Trading The Cup And Handle Pattern

Candlesticks forming the handle will give you warnings about what’s going to happen. If the handle breakout fails, there was probably candlestick warnings along the way . This is one of the strategies that all successful stock picking services use like Jason Bond and Microcap Millionaires. I would recommend using a swing trading service at least until you can pick stocks reliably on your own. Looking to see this one play out over a 7 day time frame.

• Greed, fear, hope, despair and other emotions drive stock prices.
• Secondly, you need to learn to identify the length and depth of a true cup and handle, as there can be false signals.
• They are both applied from the moment of the breakout as shown on the image.
• That being said, if you want to trade more aggressively, there is another price level that you can consider placing your stop loss at.
• As the price and volume rise together, forming the right side of the cup, and fall together, forming the handle, the price and volume should give the appearance of shadowing each other.

Prices then rally to an approximately equal size to the prior decline. It creates a U-shape or the “cup” in the “cup and handle.” The price then moves sideways or drifts downward within a channel, forming the handle. As a trader, if you want to identify a cup and handle pattern, you need to follow the price action of an asset on a chart. The cup and handle pattern begins to take shape when there is a sharp decline in the price movement of a forex currency pair over a short period. This chart pattern is considered a bullish signal as the right-hand side of the cup and handle pattern experiencing lower trading volumes.

How To Properly Identify The Cup And Handle Pattern?

The below video breaks down another working example of the Day Trading Cup Breakout. Get trading experience risk-free with our trading simulator. The last time I checked, simply drawing a line up in the air means absolutely squat. Please see the further, important https://tokenization.cm/the-stock-market-game/ disclosures about the risks and costs of trading, and client responsibilities for maintenance of an account through our firm, available on this website. Testimonials on this website may not be representative of the experience of other customers.

Let’s take a look at a potential Cup and Handle trading system and the rules we need to follow when trading this pattern. The two tops of the cup are approximately on the Underlying same area. Wedges are similar to triangles, but slope counter to the previous trend. For example, an uptrend falters and a falling wedge forms before breaking out higher.

Inverted Cup & Handle patterns usually take several months and sometimes over a year to form. The best patterns possess a decent amount of symmetry with the right half of the cup mirroring the left half and the right half of the handle mirroring the left half. But while it is nice Promissory Note for the pattern to have a smooth even balance, it is not absolutely necessary. Also, it is important that the handle not go below the midpoint of the cup. Theoretically, only the selling to satisfy the people who want to get out near the previous high needs to take place.

Write down all the details of how you will trade in your trading plan. In order for me to consider a cup and handle trade, I want to see the handle contract. It starts out as choppy and wild looking and then it settles down. Once it settles down, cup and handle pattern time frame that is when I get really interested. We’ll get to how I trade these patterns in a little bit. In the charts below I have picked a few good examples of the pattern, and highlighted some of the traits we are looking for in a cup and handle stock.

Limitations Of The Cup And Handle

But the stop loss must set on the upper third of the cup where strong handles will not fall below this point. In the early 1990s, William O’Neill explained technical analysis for the classification of the patterns in several articles. Since then a vast majority of traders adhere O’Neills cup and handle pattern specifications. Stop buy orders can be used to automatically trade a breakout above the handle’s upper trendline or above the level of the right side of the cup.

The 1996 to 2005 cup and handle pattern was unconventional because it was a saucer bottom formation rather than a bullish continuation pattern. Gold reached both its arithmetic and log targets in only one year. This scan is one way to do it, but really any method that finds stocks that are stronger than average is fine.

Stop Looking For A Quick Fix Learn To Trade The Right Way

There is a risk of missing the trade if the price continues to advance and does not pull back. Saucer bottom formations belong to the group of patterns that seemingly have curve-line or rounding turns. Prices during the period of formation, especially at the rounding turns, have low volatility and move narrowly, forming a gradual bowl shape. Saucer bottoms are found at the end of a downward trend and are considered to be bullish reversal patterns. The initial downward slope indicates an excess of supply.

How To Use Volume To Improve Your Trading

I am referring to the Cup and Handle Pattern for Forex trading. The following material will outline the unique structure of this pattern as well as a strategy for successfully trading it. The double top is a bearish reversal pattern with two peaks, or highs, at approximately the same price level. The double top typically follows a long uptrend, and its “M” shape is easily recognizable. This pattern is sometimes also called a “saucer bottom” and demonstrates a long-term reversal showing that the stock is moving from a downward trend towards an upward trend instead.

Using the CANSLIM system from this point, the user must wait for these stocks to break out on significant volume to actually buy them. When evaluating whether a cup and handle pattern is real, it is important to look at the shapes of both the cup and the handle. The rounded top are reversal patterns used to signal the end of a trend. A step by step Swing trading guide to help beginner and profitable traders have a full overview of all the important skills (and what to learn next