For a more in-depth read about double tops and double bottoms, check out our article on divergence trading strategies. With the best trading courses, expert instructors, and a modern E-learning platform, we’re here to help you achieve your financial goals and make your dreams a reality. That’s why you need to use other technical indicators along with this pattern to time your entries correctly, and increase the odds of your success. And the thing is that breakouts usually happen on high volumes. So make sure you don’t forget to place a stop-loss order above the top of the handle.

Generally, these patterns are bullish signals extending an uptrend. Another issue has to do with the depth of the cup part of the formation. Sometimes a shallower cup can be a signal, while other times a deep cup can produce a false signal. Sometimes the cup forms without the characteristic handle. Finally, one limitation shared across many technical patterns is that it can be unreliable in illiquid stocks.

Set an Exit Strategy with The Cup and Handle Pattern

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Again, beware cup and handle patterns that form at the end of a trend rather than partway through it, as they are less likely to signal a strong continuation. A Cup and Handle is a chart pattern where the price movement of an asset resembles a “cup” followed by a downward trending price pattern. It’s also important to keep in mind that the cup and handle pattern is not a perfect indicator. There will be times when the stock price does not move higher after the pattern forms. In these cases, it’s important to use stop-loss orders to manage your risk and have a sound trading strategy for getting out. It’s also important to keep in mind that the cup and handle pattern is not a perfect indicator. In these cases, it’s important to use stop-loss orders to manage your risk and have a sound trading strategy for getting out.

Strategy #1 – Riding With The Trend

The cup and handle pattern was first identified by William O’Neil, a well-known figure in the world of technical analysis. In his book, “How to Make Money in Stocks“, O’Neil discusses the cup and handle pattern as one of the most reliable chart patterns for identifying bullish trading opportunities. O’Neil found that stocks that formed this pattern tended to outperform the market over the ensuing 12-month period. The cup should be more U-shaped than V-shaped, as a gentle pullback from the high is more indicative of consolidation than a sharp reversal.

• This means that the bottom should be a bit rounded and not like a V. This is because the latter is usually considered a very sharp reversal.
• The pattern takes some time to develop, but is relatively straightforward to recognize and trade on once it forms.
• Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
• For example, if the distance between the bottom of the cup and handle breakout level is 20 points, a profit target is placed 20 points above the pattern’s handle.
• This pattern moves in the opposite direction to the cup and handle, forming an “n” shape and an upward handle.

Secondly, practitioners have found issues with the depth of the cup. While a shallower Cup and Handle Pattern cup can represent a bullish signal, a deeper cup can produce a bearish signal.

Avoid Deep Bases

PVR made cup n handle pattern on hourly/daily charts & broke out of it with very good volumes. Potential cup and handle bottom on UJ, looking at JPYX we have broken a range and is trending down on the 4H chart, we could look to buy a break of neckline. 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.

This could lead to even more price increases in the future. However, sometimes, the market closes much higher and you get a poor https://www.bigshotrading.info/ target entry point. This results in a wide stop loss and a smaller position size on your trade. This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk.

Bullish cup and handle pattern

The limit portion controls the price paid in case there is a gap higher or very little volume until a much higher price. My Complete Method Stock Swing Trading Course covers this pattern in-depth, with lots more variations and tips, plus other strategies as well. DTTW™ is proud to be the lead sponsor of TraderTV.LIVE™, the fastest-growing day trading channel on YouTube. Second, the cup section should look like a U even from a distance. This means that the bottom should be a bit rounded and not like a V. This is because the latter is usually considered a very sharp reversal. This is a bullish pattern that was developed by William O’Neill, who wrote about it in a book he published in 1988. Use automation to find better trades, eliminate mistakes and manage your investments – even while you’re away from the computer.