We are simply unpacking its components to learn the meaning of each element. If the cup and handle form after a downtrend, it could signal a reversal of the trend. To improve the odds of the pattern resulting in an actual reversal, look for the downside price waves to get smaller heading into the cup and handle. The smaller down waves heading into the cup and handle provide evidence that selling is tapering off, which improves the odds of an upside move if the price breaks above the handle.

• A good time to buy is when the price of the asset moves up and exceeds the price levels seen previously at the top of the right side of the cup.
• You could also use the larger height for an aggressive target.
• It feels like a breather taken by the buyers before continuing the upmove.
• We are simply unpacking its components to learn the meaning of each element.

An inverted “cup and handle” is used to identify selling opportunities, which is a sign of an upcoming bearish movement. This pattern moves in the opposite direction to the cup and handle, forming an “n” shape and an upward handle. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. Another related technical analysis indicator to keep in mind is an inverted cup and handle pattern. Some traders consider that pattern a harbinger of a downtrend in the asset’s price that helps identifying selling opportunities.

Advanced trading technique: How to enter the breakout BEFORE the breakout

Also, give your stop loss some buffer below the swing low as you don’t want the price to breach the lows, and only to reverse higher. If it doesn’t, then chances are it’s in a range or about to reverse lower. For a trend to continue higher, it MUST make higher highs and lows. And when the trading setup is “destroyed”, the reason to stay in the trade is no more. However, the market could do a False Breakout and you are long the highs. So whenever you see a buildup of higher lows into resistance, it’s a sign of strength.

The price then rebounds, testing the previous high resistance levels, after which it falls into a sideways trend. In the final leg of the pattern, the price breaks through the resistance level, soaring above the previous high. Alternatively, wait for the price to close above the resistance trend line, connecting two highs of the cup, and enter a buy trade.

What does the cup and handle pattern indicate?

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 trading range corresponding to a cup and handle formation shows up in two phases. One is between the resistance line and the bottom of the cup, and another between the resistance and support lines, demarcating the handle part of the pattern.

Since the handle must occur within the upper half of the cup, a properly placed stop-loss should not end up in the lower half of the cup formation. The stop-loss should be above $49.75 because that is the halfway point of the cup. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. The buy point occurs when the asset breaks out or moves upward through the old point of resistance (right side of the cup).

What Happens After a Cup and Handle Pattern Forms?

If the trend is up and the cup and handle form in the middle of that trend, the buy signal has the added benefit of the overall trend. In this case, look for a strong trend heading into the cup and handle. For additional confirmation, look for the bottom of the cup to align with a longer-term support level, such as a rising ​trendline or moving average.

When the price breaks out of the handle, the pattern is considered complete, and the price is expected to rise. Chart patterns, like a triangle, rectangle, head and shoulders, or—in this case—a cup and handle are a visual way to trade. The cup and handle pattern, also sometimes known as the cup with handle pattern was first identified by stockbroker William O’Neil in 1988. As the cup is completed, the price trades sideways, and a trading range is established on the right-hand side and the handle is formed.

What happens after a cup and handle pattern??

This is the point where the tables turn, with the selling pressure and weaker hands going down. Being able to measure the depth of the cup is necessary as it allows aggressive traders to identify the maximum profit potential. You’ve identified a cup and handle pattern, but before you jump into the trade, you must wait for a handle to form completely. The handle often takes the form of a sideways or descending channel or a triangle pattern.

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. As mentioned, the chart formation’s cup element has well-defined resistance lines. The initial resistance line is at the top left of the chart, from where the initial correction begins, all the way to the bottom. This resistance line works as the support level of a prior uptrend, and once the asset starts dipping (forming the left side of the cup), the weaker hands start moving out.