The right side of the handle rises higher than the left and the pattern slightly overestimates the extent of the bullish continuation after the breakout. A cup and handle formation is considered significant when it follows an increasing price trend, ideally one that is only a few months old. The older the increase trend, the less likely it is that the cup and handle will be an accurate indicator. The trade volume should decrease along with the price during the cup and should cup and handle chart increase rapidly near the end of the handle when the price begins to rise. Like with the cup with handle and, indeed, all chart patterns, you want to see volume come in at least 40% higher than normal on the day of a double-bottom breakout. If the cup and handle forms after a downtrend, it could signal a reversal of the trend. To improve the odds of the pattern resulting in a real reversal, look for the downside price waves to get smaller heading into the cup and handle.
The stop loss should be above $49.75 because that is the half-way point of the cup. If the stop-loss is below the half-way point of the cup, avoid the trade. Ideally, the stop-loss should be in the upper third of the cup pattern.
I’ve seen it more of a reversal pattern than a continuation pattern. The easiest way to describe it is that it looks like a teacup turned upside down. It’s a kind of double cup, a clear handle, and https://g-markets.net/ a clean breakout. It’s not textbook cup and handle, but the pattern is still obvious. Some traders take a long position once price breaks down out of the handle placing a stop at top of the handle.
Essentially, we want strength into the cup and handle pattern breakout and deep pullbacks can negate that. I am going to cover how to trade the cup and handle pattern in 6 steps below. The Secondary market pattern can be a continuation pattern or can mark the turn in trend from a downtrend to an up trending market. Now you have another chart pattern in your tool belt to study. The cup and handle is one of the classic patterns that every trader should know. At this point, the cup and handle chart pattern will be evident.
When you confirm the pattern, the price is likely to break the channel of the handle, initiating a bullish move. The first target equals the size of the channel during the handle. The second target equals to the size of the cup starting from the moment of the breakout. A smaller cup and Lukoil stock price handle pattern follows with the cup completed at and the handle completed by the subsequent breakout above $4.00. Again, observe how volume contracts as the handle forms and then rises sharply at the breakout. The handle is completed when price breaks above the intervening peak .
Cup With Handle: Important Bull Market Results
Not surprisingly, double bottoms typically form when the general stock market is showing similarly volatile, roller-coaster behavior. Showing reslienced and resumed market leadership, NVDA stock has rebounded from a sell-off that began in October 2018 and is now back to trading near an all-time high. From IBM in 1926 and Walmart in 1980 to Nvidia in 2016 and again in 2020, countless big winners have made large gains from a cup with handle in every market cycle for decades. When looking for the best stocks to buy and the best time to buy them, three main factors come into play.
The strategy captures consistent and often explosive price moves/profits. The pattern is easy to find and trade, although there are some very specific traits you will want to look for. Without those traits present, you’ll have a lot more losing trades.
The pattern is marked with the blue lines on the chart. The small blue bearish channel at the end of the cup is the handle. Our buy signal comes when the price action breaks the channel of the handle in a bullish direction.
Sometime afterwards, the price action reaches the second target on the chart. You have the option to close your entire position at this second take profit target. However, you could opt to hold a portion of the trade for further gains if you see price action continuing to trend upwards. The yellow line on the chart is an upward Sturm Ruger stock price trend line, which measures the bullish activity of the price action. You could hold the trade as long as the price action is located above the yellow bullish trend line. The break through the trend line is shown in the red circle on the chart, which would signal an opportune time to close out the trade in its entirety.
When We Look At The Volume
A stock’s price will dip while it is in the handle, but in a true cup-and-handle pattern this dip will not endure. It typically represents technical analysis rather than a shift in the stock’s fundamental value. As a result, once this post-recovery trading has finished an investor can expect the stock to resume its previous growth. A cup-and-handle pattern can take place over any period of time. Some patterns emerge during day trading, forming over the course of hours, while others can take shape over the better part of a year. Often the asset’s price will remain at its low point for weeks or even months before recovering its value. This is useful when trading both the cup and handle and the inverted cup and handle, because you can speculate on upward or downward price movements.
- When you look at this pullback of that handle, you’ll see probably light or weak volume as well.
- The handle should form in the top half of the cup pattern, with volume contracting as the trough forms and then expanding on the breakout.
- Fortunately, the price should not move into the lower 1/3 of the cup, which makes it a good level to place a protective stop.
- The remaining process is similar when trading the cup and handle pattern.
- Look through the price history and see how much the price ran after similar patterns.
- You want to make sure that you’ve located the direction before you trade it.
- We have the standard “U” shape formation, followed by the small bearish channel – the handle.
Light volume in the market in general may also be a factor. Also consider that the breakout may have started later in the day. Try to limit your picks to cups that are no more than 30% or 33% deep, except for those built during a bear market.
Profit Target For Cup And Handle Pattern
A Cup and Handle pattern is a bullish continuation pattern that resembles a teacup on a candle chart. The handle part is when the price pullback slightly before roars higher and continues the previous trend. The Cup and Handle pattern can take between 30 to 50 candles to form on any given time resolution. The second example is another classic cup and handle pattern that develops over three to four months, with the handle forming over approximately two weeks. The cup retraces slightly more than half the preceding movement, which is relatively mature prior to the cup and handle pattern’s formation.
The stop loss order of this trade needs to be placed below the lowest point of the handle. This is shown with the red horizontal line on the image. The magenta arrows and lines represent the two targets on the chart.
Scanz can help you find top-performing stocks in any sector. In this guide, learn how to scan for the best REIT’s using the Scanz platform. After breaking out of that cup with handle, Netflix pulled back again to form yet another flat base. Netflix really took off when it broke out of the second flat base at the beginning of this year.
The fourth interaction actually breaks through the downtrend line. The depth of the pattern is represented with the pink arrow from the breakout point. Well in the next section of this article, we will cover how to use price action to stay in your trade to maximize profits. This brings up a great point, in that when you are right and I mean right, the market will go in your favor quickly. Try to resist the urge to sell when a stock moves quickly in your favor, this is likely a sign that you have a real winner on your hands. Both Bitcoin and Gold suffered severe bear markets that saw many investors jump ship.
The handle should form in the top half of the cup pattern, with volume contracting as the trough forms and then expanding on the breakout. For a more detailed explanation on the cup and handle pattern, here is a video tutorial on how to use this breakout pattern to catch explosive price movements. In this chapter, we will share practical trading tips that you can to enhance the success rate of the cup and handle chart pattern. As covered in the previous setup, one of the ways to trade the cup and handle pattern is to enter just before the price breaks out of pattern. After having seen all the different price patterns, in this chapter we will zoom in on the cup and handle chart pattern, which is one of the reversal price patterns. A buy signal is triggered when prices surpass the high of the right side of the cup.
Notice that in the moment of the breakout, the trading volumes begin to spike. This validates the signal and gives a confirmation of the cup and handle pattern. With a computer program that screens for such patterns, the user is provided a list of stocks whose charts are the best cup-with-handle candidates on a purely technical basis. It is then up to the user to research these stocks to determine which have the qualifying fundamental criteria. The user must not buy stocks from the list yet, as many stocks which complete the cup with handle set up, do not break out.
Sometimes that’s a bad thing because my top students and I trade penny stocks based on volatility. A price target to the downside could be between 20%-50% but they can go lower and of course they can also rise back in price into the inverted handle and fail. A trader has to follow how it plays out by letting winning trades run but cutting losing trades cup and handle chart short. The buy point is a momentum short signal as the stock makes a new low outside the bottom of the inverted cup. The stop loss can be set on the top of the ascending trendline of the inverted handle. The inverted cup top is formed when the stock finally runs out of buyers at new high prices and sellers start moving in and bidding the stock down.
You’ll significantly increase your rewards and reduce your risk if you wait for each of these elements to line up before you buy. This, of course, is where all the above parameters lead if they appear correctly. The buy point from a cup-with-handle base appears at the highest point of the handle, plus 10 cents. In the case of former big winner Baidu, the proper buy point during its May 14, 2007, breakout was 132.90, a dime above the handle’s intraday high of 132.80.
Due to the rounded bottom of the pattern, you should use a curved drawing tool. The decrease could stop a bit before the midpoint, or could go a bit below. Sometimes, the beginning of the decrease and the end of the increase could diverge in terms of the level they are supposed to be located at.