Cup and Handle Patterns Comprehensive Stock Trading Guide

This is why sifting through the charts of the market’s greatest winners is time well worth spent. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case. Traders use this indicator to find opportunities to buy securities with the expectation that their price will increase. Additional information about your broker can be found by clicking here.

The Cup and Handle Pattern was made popular by William O’Neil, which now has expanded into all sorts of trading scenarios. Traders have come to know the cup and handle as a bullish continuation pattern that is a highly accurate predictor of sizable breakouts. To learn more about stock chart patterns and how to take advantage of technical analysis to the fullest, be sure to check out our entire library of predictable chart patterns. These include comprehensive descriptions and images so that you can recognize important chart patterns scenarios and become a better trader.

Cup with Handle

Please follow Saito-Chung on Twitter at both @SaitoChung and @IBD_DChung for more on growth stocks, charts, breakouts, sell signals, and financial markets. On the charts it looks like an upside down cup with the price of an asset on a downward trajectory moving up, stabilizing and then moving down again, https://www.bigshotrading.info/ followed by a handle pointing upwards. Most of the same general rules, such as the handle not exceeding 1/3rd of the cup, still apply. The price of the asset is expected to drop after the pattern formation is complete. If the cup and handle form after a downtrend, it could signal a reversal of the trend.

• Once the cup regains its high there’s a modest pullback as investors consolidate rather than invest.
• The cup and handle pattern is a bullish continuation pattern that consists of two parts, the cup and the handle.
• This top chart pattern is a favorite among swing traders, who have been relying on this pattern for decades to spot potential opportunities for profit.
• 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.

To identify the cup and handle formation O’Neil claims the handle should extend no longer than one-fifth to one-quarter the length of the cup. The handle will remain close to the prior highs, which will squeeze out the short-sellers and cause new buyers to enter the market. The pattern forms during as a result of consolidation a bullish movement and indicates a continuation of that bullish trend after its completion. The cup and handle pattern occurs when the price of an asset trends downward, followed by a stabilizing period. Prices then rise 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 small price range, forming the handle.

Cup and Handle Pattern Trading Strategy Guide

The best strategy is to use this indicator as a way to identify potential reversal signals. This will help you confirm a downward breakout on the inverted cup handle pattern. When you plot it on a chart, this EMA acts as a dynamic support and resistance level.