The Effective Guide to Cup and Handle Pattern Trading
Cup and handle pattern is a candlestick formation on bar charts and signals and upward price movement. It is a visual pattern and represents a “U” shape along with a handle. Handle formation is a pattern with downward or consolidating price action. The cup and handle chart pattern could occur after a price increase or decrease. It has a bullish potential and is a good indicator to signal an uptrend. Investors can easily locate this pattern on a chart and mark their profit targets.
The cup and handle pattern has a proper entry with low risk, and it is a good strategy to make quick profits. The formation works best in a daily or four hourly charts. It takes time to form such a pattern but comes with a high success rate.
As its name suggests, the cup and handle candlestick represents a chart, depicting a cup along with its handle. The pattern starts with a gradual price decrease, after which the price consolidates at a certain range. Afterward, the price starts to rise, testing the previous resistance, forming the cup. The change is slow and steady, resulting in the cup.
Keynotes on Cup and Handle Cup Chart Pattern
- A cup and handle pattern is a visual formation on stock or Cryptocurrency chart and is not a fundamental indicator
- A cup represents a cup with a “U” shape and the handle has a slight downward drift
- Cup and handle formation is a bullish indicator and is a good opportunity to open a long position or place buy orders
How Cup and Handle Pattern comes into formation?
Cup and handle chart pattern results from price consolidation and positive market sentiments. It signals a bullish takeover of the stock or Cryptocurrency market. The pattern starts with bears pushing the price to newer lows. There are big red candles which serve as the start of the cup and handle formation.
The bulls keep pushing the price until it gets into oversold territory and other indicators point sign of reversal. Consolidation of price happens and buyers accumulate the stock or Bitcoin to book profits on the incoming leg up. After a brief consolidation, the price begins to move upward and test the previous resistance.
However, the bulls fail to break the resistance, and traders start to sell their stake, pushing the price for a handle formation. The handle is like a falling wedge or descending triangle formation, attached to the cup. Together with the cup it signals bullish takeover of the market and is extensively used by traders to judge the price movement.
Cup and handle technical analysis in practice
Cup and handle breakout is a common occurrence during positive market sentiments. They are easy to spot and confirms that bulls are totally in control of the market. Below is the chart of Litecoin to Bitcoin trading pair showcasing the cup and handle candlestick formation.
The pattern breakout and target
When using the cup and handle technical analysis, a trader can easily spot the target price. The price target is easy to set up and usually hit the price range. The cup and handle breakout price target is the distance from the lower or bottom of the cup to the resistance area. The chart below shows the above pattern with the target price. Look closely how the price reaches all of our targets.
Cup and handle pattern is one of the most effective trading strategies. The cup and handle technical analysis is easy to use, and it has assisted thousands of traders to benefit from the situation. However, traders should also be cautious while using this pattern. There might be instances where an irregular formation might look like a cup when this might not be the case.
Do you know: There is also an Inverted Cup and Handle Pattern, you wouldn’t want to miss out.