How to Trade Cup and Handle Pattern

Find out what makes Cup and Handle one of the best chart patterns for trading.

Imagine yourself holding a cup of hot tea ☕ ???? , feeling the warmth and comfort it gives you. Now imagine the same feeling when it comes to your investments. Well, you’re in luck! We’re about to dive into the world of the “Cup and Handle” pattern, which is just as cozy as your morning cup of coffee and just as profitable. We’ll go deep into the details of this powerful chart formation to help you create a winning trading strategy.

Get ready to take a sip of  from the cup of trading knowledge and explore how to maximise profit potential because understanding the cup and handle pattern is essential for being on top of the market. 

An overview of the Cup and Handle pattern:

• William O. Neil created it, and he first addressed it in his book “How to Make Money in Stocks.”

• The Cup and Handle pattern is bullish and looks like a tea cup and handle. It appears when the price of a stock first curves downwards then rises again and forming a “cup”☕(U) shape, then a smaller dip known as the “handle.” According to this pattern, the stock’s price may sharply increase after a short-term dip.

• The Inverse Cup and Handle, on the other hand, is the reverse. It resembles an upside-down tea cup (n). with a handle and is a bearish pattern. In this case, the cup is formed by the price curve of the stock, which first rises and then falls before making a slight upward curve for the handle. This pattern suggests that the stock price might drop after a short-term increase.

What does it look like?? ????

To get a good grasp of the pattern, let’s consider an example:

If you’re looking to trade Cup and Handle or Inverse Cup and Handle patterns, you’ll need to know how to do it. This guide will show you how to do it step by step. 

Trading using Cup and Handle pattern

1. Determine the Pattern:

• A “cup” shape with a tiny dip serving as the “handle” is what you should seek out. This can indicate that the bullish trend is about to change direction.

2. Confirmation:

• Wait until the price of the stock breaks out above the resistance level of the handle. This will confirm the pattern and signal that the stock could go up.

3. Entry point: 

• As soon as you see the confirmation signal,and breakout occurs enter a long position (buy)

4. Stop loss and Risk Management:

• If the market doesn’t go your way, place a stop-loss below the handle’s low to manage risk.
• Measure the cup’s height and project it up from the breakout point to determine the trade’s target price. This provides you with a price target to target.This gives you an idea of what price range you should be aiming for.

5. Monitor the Trade:

• It is essential to monitor the trade closely,if it hits your target or begins to reverse, take profits. On the other hand, if it falls below the breakout level, it could be a sign to stop the trade.

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Trading using Inverse Cup and Handle pattern

1. Determine the Pattern:

• Look for an upside-down “cup” shape followed by a smaller upward move forming the “handle.”  This can indicate that the bearish trend is about to change direction.

2. Confirmation:

• Wait until the price of the stock breaks out below the support level (neckline) of the handle. This will confirm the pattern and signal that the stock could go down.

3. Entry point: 

• As soon as you see the confirmation signal,and breakout occurs enter a short position (sell)

4. Stop loss and Risk Management:

• If the market doesn’t go your way, place a stop-loss above the handle’s high to manage risk.
• Measure how high the inverted cup is from where it broke out and project it down to get your target price.This gives you an idea of what price range you should be aiming for.

5. Monitor the Trade:

• It is essential to monitor the trade closely,if it hits your target or begins to reverse, take profits. On the other hand, if it rises above the breakout level, it could be a sign to exit the trade.

Also read: How to Trade Double Top and Double Bottom Pattern

Example of Cup and Handle pattern in Trading chart

Here, the KIPT technologies trading chart displays the construction of a cup and handle  pattern.

It has been an upward trend for the stock .After that, the creation of the pattern becomes apparent.

Conclusion

Basically, Cup and Handle is like a cup of tea for traders – it’s comforting and can help you make money. We’ve looked into how it works, which version is bullish and which one is bearish, and how you can trade them. From spotting the pattern to picking your entry and exit point, these strategies will help you stay on top of the markets. So whether you’re going for the bullish cup and handle or the bearish inverted cup and handle, don’t forget that a good strategy – like a good cup of tea – can bring you success in the world of trading.

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