FREE Demat account with Samco and apply your learnings to make money from the stock markets. The stock has been in an uptrend from August 2020 to June 2021. We have seen a huge bullish rally from Rs. 165 to Rs. 1,726.45. But before we get into what is a cup and handle pattern and understand how to interpret it, let’s look at how the pattern looks like with the help of a real tea cup. The ascending triangle pattern is a continuation pattern.
It is obvious that the higher the price target, the more time it will take for you to achieve the target. So, if you are a short term trader you can go with the smaller price target. Long term investors can prefer going with the bigger price target. These are the traders who had entered into the short position at the handle. Looking at the strong bullish momentum, they will run to cover their positions in losses. Whereas, as there has been a breakout, more and more traders will turn optimistic about the stock and buy it which contributes to the up move.
- The cup is formed as the price consolidates in a small range following a sharp decline.
- On 14th January 2022, the stock hit a high of Rs. 1,507.45 which is just above our smaller price target.
- Here, it hits the resistance level, and the handle starts forming.
- When you are day trading cup and handle patterns, you must realize that not all handles are created equally.
- Once the cup regains its high there’s a modest pullback as investors consolidate rather than invest.
The round shape indicates consolidation, and that’s a good thing. If the cup is in a V-shape, the reversal will be too sharp of a movement. Here’s an example of a cup and handle in a longer time frame. NGTF started the pattern at the end of November 2018 and went into February of 2019. If it doesn’t, the stock’s momentum may not be enough to break through the higher resistance level. It starts when a stock’s price runs up at least 30% … This uptrend must happen before the cup base’s construction.
Yep, this is a bullish pattern and can be a technical indicator for traders of a potential upcoming breakout. One of the most popular chart patterns is the cup and handle pattern. To learn more about the cup and handle in its many forms, go to Bullish Cup and Handle Pattern for an e-book on the topic. This e-book provides an in-depth analysis of the pattern and how you can use it to trade with greater success. A cup and handle is considered a bullish signal extending an uptrend, and it is used to spot opportunities to go long.
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Even if you don’t plan on using it, it’s popular with a lot of traders. That means it can become a self-fulfilling prophecy when enough traders see it forming. That’s why we designed StocksToTrade to have such incredible, easy-to-customize charts.
How to identify the Cup and Handle?
This confirms the cup and handle as the initial bullish indicator. Some students come into the Trading Challenge with preconceived ideas about patterns. Sometimes that’s a bad thing because my top students and I trade penny stocks based on volatility. The pattern completes only when the price breaks out from the handle’s trading range to signal the continuation of the previous rally. However, a share price declines it can mean many things, not just the formation of a handle.
It is just testing the https://forex-trend.net/ action to see whether the bearish trend is strong enough. As you can see, the price action managed to reach both profit targets. The first take profit target should be located at a distance that is equal to the size of the handle. When you spot it on your chart, it’s time to buy or sell the currency pair depending on the potential of the pattern.
Risk Management
The cup and handle pattern is very popular among traders as it comes with a high success ratio but it also comes with its own risk. Hence, whenever you place a trade, make sure to add a stop loss. This will help you cut your position in a small loss if something goes wrong. All you need to do is measure the height of the handle and add it above the resistance level. In this case, the height of the handle is Rs. 10 (Rs. 60 – Rs. 50). During this uptrend, traders get quite optimistic about the stock.
This means the inverted cup and handle is the opposite of the regular cup and handle. Instead of a ‘u’ shape, it forms an ‘n’ shape, with the handle bending slightly upwards on the chart. Cup and handle patterns typically are seen to occur on a daily chart after a strong trend has progressed for one or more months. Here, it hits the resistance level, and the handle starts forming. It may resemble a flag or a pennant with a slightly downward slope, or it may be a short pullback from the preceding top.
The full pattern is complete when price breaks out of this consolidation in the direction of the cups advance. The inverted cup and handle pattern consists of an inverted cup and a handle. The inverted cup is like a dome with a rounded top and forms after a price decline, with the height about 30-50% of the decline preceding it.
Examples of the Cup and Handle Pattern
Most times, the handle should not go lower than the top third of the cup for it to be considered a cup and handle pattern. After the initial stock runup of the pattern, the price drops as investors sell their shares. Round bottom with a small retracement What you would want to see on a classic cup and handle is a nice round bottom with followed by a slight retracement. Volume breakout After the formation of the cnh, the market will try to make a run, temporarily breaking the horizontal resistance. ✅This pattern is not as popular among traders as “Head and Shoulders”, “Double Top” and other classic patterns of technical analysis. However, this does not mean that it is not so effective.
https://topforexnews.org/rs can do this by making use of price action techniques or other technical indicators like the moving average. A cup and handle chart may indicate either a continuation pattern or a reversal pattern. A reversal pattern can be seen when the price is in a long-term downtrend, then forms a cup and handle that reverses the trend as the price begins to rise.
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https://en.forexbrokerslist.site/ rims The two cup rims should reach the bottom at close to the same price. Cup handle To the right of the cup there should be a handle. The cup’s recoil handle should not rise above the top of the cup, but often tracks 30% to 60% above… I became a self-made millionaire by the age of 21, trading thousands of Penny Stocks – yep you read that right, penny stocks. The Complete Penny Stock Course.” It answers most of the questions new traders ask me. The more you know about how they think, the smarter you can start to trade.
Few traders who bought the stock at the beginning of the uptrend or during the rally are making good profits. A bullish continuation indicates that the uptrend is going to sustain in the future. So, a continuation pattern would occur in the middle of an uptrend and signal that once the pattern is complete and once you receive a confirmation, the uptrend will resume. The price drifts sideways or moves downward within a channel that forms the handle. With this chart pattern, the handle has to be smaller than the cup. It should not drop into the lower half of the cup; it should stay in the upper third.
A proper handle forms in the upper half of the base and is at least five trading days long, typically light in volume. It can take some time for this pattern to develop … but traders like it because it’s easy to recognize and has an excellent risk to reward ratio. The initial bullish trend moved price from $61.75 to resistance of $63.75 in approximately a two-week period.
