New Ways to Trade the Cup and Handle Pattern

Investing involves risk, including the possible loss of principal. The traditional buy point is a breakout above the high of the handle, which clearly puts bullish momentum on your side. Furthermore, according to this strategy, a stop loss could be placed at the highest level of the cup, and a take profit is placed at the neckline or lower. Identify ideal entry points with the help of the https://www.bigshotrading.info/blog/option-trading-strategies/ in the forex market. Start your trading journey Blueberry Markets to enjoy an end-to-end trading experience with expert brokers and advanced tools and techniques. Sign up for a live trading account or try a risk-free demo account on Blueberry Markets.

A conservative price target can be achieved by measuring the height of the handle and adding it above the resistance level at the top right-side of the cup. Sometimes, the left side of the cup is a different height than the right. Use the smaller height and add it to the breakout point for a conservative target. You’ve identified a cup and handle pattern, but before you jump into the trade, you must wait for a handle to form completely.

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Now, you don’t want to put your stop loss at the exact low of the handle because the market could trade into that area of value and reverse higher. And when the trading setup is “destroyed”, the reason to stay in the trade is no more. After the Cup is formed, the market has shown signs of bottoming as it makes higher lows towards Resistance. The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

So there are more price moves in the charts, making the pattern appear narrower. It is identified in an uptrend when prices start dropping temporarily, trade within a range for some time before rising back up, forming a flat ‘U’ shaped Cup. The formation is followed by some decrease in the prices, forming the Handle, followed by the final uptrend. As the name suggests, the Multi-year Cup Handle is formed over a few years in the financial market.

Set a Stop-loss with The Cup and Handle Pattern

This way, the resistance can break from the handle, trapping investors before going back to the bottom of the cup or even lower. As this projection offers an approximate target, traders can enter the asset anywhere inside this trading range, provided other indicators validate the pattern formation. The first thing that a trader should do, regardless of the bullish pattern, is determine the distance and the potential profit target. You can do this by identifying the resistance level of the cup and the bottom of the cup and measuring the distance between the two. Also, if you see a golden crossover occurring — a smaller moving average crossing above the higher moving average — it might validate the breakout potential of the cup and handle formation. This resistance line starts from the left and can be extended to the right side of the chart, helping traders identify the potential of the price gain from the bottom.

Cup and Handle Pattern is often considered a bullish signal, with the handle usually experiencing lower trading volume. However, there is also the other side of this pattern, the reverse cup and handle, which represents a bearish trade. After a cup and handle pattern forms, the price should see a sharp increase in the short- to medium-term.

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If the RSI quickly ends up moving to 70 or even 80 before the breakout even happens, the handle might see some more consolidation. The selling the supply line strategy follows trendlines to place profit targets and provides traders with ideal profit levels during a long or short trade. With this strategy, traders receive closer to accurate signals about where the market can potentially reach, set their profit targets accordingly and make trade decisions wisely.

The second way to trade the Inverse Cup and Handle is by looking for a reversal, which is pretty similar to the first method. As we have explained in the first method, the most convenient way is to wait for the price to break the cup’s neckline. As you can see in the chart above, after the price broke below the neckline of the inverse cup pattern, the GBP/USD fell sharply.