Ideally, there are two drops, with the second smaller than the first. No strategy is complete without understanding position sizing, so check out the How Much Stock to Buy article for a full explanation. Also, you can see that the lower part of the up happened when the price reached a 50% Fibonacci Retracement level.

It was developed by William O Neil and first discussed in his book, How to Make Money in Stocks. As the handle forms, you wait at some point the pennant formation with a downside biased will begin to start moving higher. Once rising prices are above the top of the cup it signals a valid buy signal. Typically, it is believed that the upside rally will and once price action has gone above the top of the cup equal to the distance between the bottom and top of the cup.

What is The Cup and Handle Pattern?

Wait for the consolidation, in the proper spot, and wait for volume to drop off before considering an entry. At the time of the trade, a stop loss is placed below the recent consolidation. When the price breaks out of the consolidation we are buying, so if it drops back below the consolidation we get out. Note that the consolidation is often a lot smaller than the entire handle. While the price has already moved a lot, the cup and handle pattern attempts to capture upside movement following an upside breakout from the handle.

A tight consolidation will reduce the risk, and volume often drops significantly just before a big price move higher. But the point is that you need to define exactly how the handle will look, and at what point you https://www.bigshotrading.info/ will trade it. The price can be quite choppy while forming a handle, so if you don’t have precise rules, you will have more losing trades. Write down all the details of how you will trade in your trading plan.

Stock Market

It is interpreted as an indication of bullish sentiment in the market and possible further price increases. Some traders will see this type of pattern as a continuation pattern or a reversal pattern.

• As the name suggests, the pattern is made up of two sections; a cup and handle.
• After the Cup is formed, the market has shown signs of bottoming as it makes higher lows towards Resistance.
• Whatever the height of the cup is, add it to the breakout point of the handle.
• At this point, an investor may purchase the asset, anticipating it will bounce back to previous levels.
• What should you do if volume on breakout day is much lighter than usual?
• For traders who want to add a little more certainty to their trade, they should wait for the price to close above the upper trendline of the handle.

However, when the handle is of proper proportions to the side of the cup, a breakout that goes higher than the handle is an indication of a rise in price. Furthermore, it is essential to note that this isn’t always the case, and investors should use some measures to mitigate losses when putting money into these types of patterns. A V-bottom, where the price Cup and Handle Pattern drops and then sharply rallies, may also form a cup. Some traders like these types of cups, while others avoid them. Those that like them see the V-bottom as a sharp reversal of the downtrend, which shows buyers stepped in aggressively on the right side of the pattern. The handle often takes the form of a sideways or descending channel or a triangle.

Recognizing Cup and Handle Patterns

The target of the Cup and Handle pattern is the height of the cup added to the breakout of the resistance trend line connecting the two highs of the cup. The inverted “cup and handle” is the opposite of the regular cup and handle.

• Discover what bullish investors look for in stocks and other assets.
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• A version of this column was first published in the July 9, 2010, edition of IBD.
• Volume ideally drops off during the consolidation, or has at least one or more really low volume days .
• Thank you for reply, entry above the handle is after breakout, where we can entry in pre-break out.