A cup and handle is a technical analysis pattern that appears on a chart as a U-shaped pattern, followed by a small downward drift, resembling a handle.
It is important to note that like all technical analysis patterns, the cup and handle pattern is not a guarantee of future price movements and should be used in conjunction with other analysis techniques.
Cup and Handle
It is considered a bullish pattern and is often used by traders to indicate the potential for an upcoming price increase.
- The pattern is formed when the price of a security falls, reaches a bottom, and then rises back up to near its previous high before falling again. The downward drift that follows is the handle.
The pattern is considered complete when the price breaks through the resistance level (the top of the cup) and continues to rise. Technical traders using this indicator should place a stop buy order slightly above the upper trendline of the handle part of the pattern.
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Inverted Cup and Handle
After the cup forms and the beginning of a noticeable handle takes shape, begin to monitor trading volume closely.
One way to think of the inverted handle is a follow-up to an inverted cup. The inverted handle retraces the initial move, but not to the level of the original trend.
Once you see a retracement in the form of an inverted handle of the original inverted cup pattern, setting a stop loss while selling the trend could be a potential trade idea.