cup and handle
The handle and cup A technical analysis chart pattern known as the cup and handle pattern can suggest a positive continuation or reversal in a number of markets, including forex trading. William J. O'Neil, the creator of Investor's Business Daily, popularized this pattern, which is frequently utilized to spot possible acquisition opportunities.
The two pieces of the cup and handle pattern are shaped like a tea cup on a pricing chart:
1. Cup: A design with a rounded bottom that resembles a bowl or a U, signifying a period of consolidation following an upward advance.
2. Handle: A minor pullback or consolidation that happens after the cup forms, causing the price action to slope sideways or downward and resemble a handle.
Features of the Handle and Cup Pattern
1. Trend: The pattern usually indicates a continuation of the uptrend in which it is seen.
2. Cup Formation: A rounded bottom of the cup indicates a slow change in market sentiment from pessimistic to positive. The height of the cup's sides should be almost equal.
3. Handle Formation: After the cup forms, the handle is a temporary consolidation or pullback. It can be horizontal or slope downward most of the time.
4. Volume: As the price rises, volume typically falls during the cup's creation before rising again. Volume frequently decreases during the handle development before rising once more during the breakout.
Process of Formation
1. Initial Uptrend: The price moves up, establishing a new high, and then begins to decline.
2. Cup Formation: The price starts to form a rounded bottom, creating the cup shape. This phase can take several weeks to months, depending on the time frame being analyzed.
3. Handle Formation: After reaching the previous high, the price consolidates or pulls back slightly, forming the handle. This phase is typically shorter than the cup formation and lasts a few days to weeks.
4. Breakout: The pattern is completed when the price breaks out above the resistance level established by the highs of the cup and the handle. This breakout often occurs with a surge in volume, indicating strong buying interest.
Exchange of the Handle Pattern and Cup
1. Entry Point: When the price breaks above the resistance level (the handle's high point), traders usually initiate a long position. The upswing is expected to continue after this breakout.
2. Stop Loss: To guard against a false breakout, a stop-loss order is typically positioned below the handle's low point.
3. Price Target: The distance from the cup's bottom to the resistance level plus the breakout point is usually the price target for a cup and handle pattern. This provides a range estimate for potential price increases.