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The beginning of the price decrease and the end of the price increase are approximately on the same level. The Cup and Handle pattern is aptly named because this technical pattern actually resembles a cup with a handle on the chart. The pattern starts with a price decrease, where the Forex pair gradually changes its direction. We have discussed many different types of chart patterns to date.
Even though there is no guaranteed way to avoid false breakouts, you can focus on complementary indicators, clear price breaks, and price action monitoring to lower risk. And in the case of our pattern, it should happen after the handle-specific consolidation. The trick here is to keep an eye on the upper trendline (downward sloping) of the handle and keep validating the same with momentum or moving average-specific bullish indication. An ‘inverted cup and handle’ is a chart pattern that indicates bearish continuation, triggering a sell signal. Once the price has reached the top of the cup, it starts moving sideways or slightly downwards to form the handle.
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This resistance line starts from the left and can be extended to the right side of the chart, helping traders identify the potential of the price gain from the bottom. If the prices break this resistance line, the bullish trend might just continue. The anatomy of a cup and handle formation is crucial as it allows you to identify the chart formation and plan a trading strategy accordingly. Also, this discussion regarding anatomy considers that a formation is already in. We are simply unpacking its components to learn the meaning of each element. The cup and handle pattern is a standard yet credible “bullish continuation” pattern, indicating the asset’s chance of a price surge.
In the above chart, we have a bearish cup and handle chart pattern. This acted as a confirmation of the bearish cup and handle formation. If you want to draw a bearish cup and handle chart pattern, take the two bottoms of the pattern then stretch a curved line upwards. The confirmation of this pattern happens when the price action breaks the channel of the handle in a bearish direction. The bearish cup and handle chart pattern is an inverted version of the classic cup and handle chart pattern. Out of these, the cup and handle defines market psychology in the best possible way and is one of the easiest patterns to read.
Most Popular Chart Patterns
Secondly, you need to learn to identify the length and depth of a true cup and handle, as there can be false signals. Lastly, illiquidity also restricts the cup and handle from fully forming as trading volume also affects an asset’s price. 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.
Every book and blog you can find on the web will say to just sell once this one-to-one ratio is achieved. The cup and handle pattern occurs when the price of an asset trends downward, followed by a stabilizing period. Prices then rise to an approximately equal size to the prior decline. It creates a U-shape or the “cup” in the “cup and handle.” The price then moves sideways or drifts downward within a small price range, forming the handle.
New Ways to Trade the Cup and Handle Pattern
So far, in this article, we have only highlighted when the cup and handle produced stellar results. Well guess what folks, sometimes it’s not always sunny outside. The sad thing is that the pattern was sound, but the profit target literally looks like you are recreating shelves in my kitchen. It just doesn’t make sense to me to set your targets this way. Rather than trying to define what a https://www.bigshotrading.info/ is in words, it’s best to use a picture to illustrate the pattern.
The price then started to decline and reached a low of $1050 in October 2015. Also, the right side of the cup should always come nearer to the previous high point. Finally, the handle should move lower to about half of the top of the handle. The first target Cup and Handle Pattern is equivalent to the size of the handle, while the second target is equivalent to the size of the cup. This is the point where the price reverses and begins to move in a bearish direction. The second position to take your profit has been marked as Target 2.