Cup and handle - Screener (2024)

FAQs

What is the success rate of the cup handle pattern? ›

Two decades of trading analysis reveal that the cup and handle pattern boasts a 95% success rate during bullish markets, yielding an average profit of +54%. Although reliable and precise, this chart formation can be tricky to identify.

Context and interpretation

A cup and handle formation is considered significant when it follows an increasing price trend, ideally one that is only a few months old. The older the increase trend, the less likely it is that the cup and handle will be an accurate indicator.

A cup and handle pattern failure, also known as a “failed cup and handle pattern”, is when a cup and handle pattern has formed, prices rise and move a little higher above the resistance level of the pattern.

Pullback not too steep – If in an uptrend, the bottom of the cup should be no more than 35% below the high. Cups that are 40-49% deep is too wide, which creates too much overhead price resistance. Measuring the distance is a key step to validating the pattern.

Limitations Of the Cup And Handle Pattern

Traders should be aware of the following considerations: False Signals:Like any technical pattern, false signals can occur. It is essential to use additional indicators or confirmatory signals to validate the pattern before entering a trade.

Typically, cup and handle patterns fall between seven weeks to over a year.

The cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over 1-4 weeks.

In a trending market, the price can remain above a Moving Average for a long period of time. Now, A cup and handle invalidation would be if you see a large sell-off from Resistance, as it tells you the market is not ready to head higher.

The Psychological Dynamics Behind the Pattern

The cup and handle pattern is not just a technical analysis tool; it is also influenced by market sentiment and investor behavior. The pattern reflects the psychological dynamics of the market and how traders and investors perceive the price movement.

Is there a bearish cup and handle pattern? Yes, there is a bearish cup and handle pattern. While less common, you might spot an inverse cup and handle on a chart. This is formed when a market in a downtrend enters into a consolidation phase formed of two upward moves – and resembles an upside-down cup and handle.

What usually happens after a cup and handle? ›

Once a cup and handle pattern forms, in order to generate a bullish trade signal, the price must break above the top of the handle that has formed. A drop below the handle is not necessarily bearish​​. The price may drop slightly, then rally back up, forming another handle or breaking above the initial handle.

Guidelines for Identifying the Cup and Handle Pattern

Cup Formation: Look for a U-shaped curve in the chart that resembles a cup. The left side of the cup should be relatively straight and the right side should curve upwards. Cup Depth: The depth of the cup should be at least one-third of the previous uptrend.

Inverted Cup and Handle Pattern

The cup has an inverted “U” shaped pattern made by consecutive highs followed by consecutive lows in the candlestick chart. As this pattern is considered a reliable bearish pattern, its breakout point can lead to a downtrend.

Cup and Handle Price Targets and Stop Losses

Targets are typically 10% to 30% above the entry price, or about at a 3 to 5:1 reward risk. This will vary by stock. Stocks that move less (determined before placing a target) will have smaller targets than stocks that move more.

Cup and handle chart pattern targets

Most traders use the distance between the resistance line and the cup's bottom to draft their profit target from the opportunity. So, if your market falls 100 points from the top to the bottom of the cup, you can set your profit target 100 points above the resistance line.

A cup and handle is typically considered a bullish continuation pattern. That said, it matters more how the price moves after the cup and handle has formed that determines whether the price action​​ is likely to continue being bullish or moving in a higher direction.

Advantages of the Cup and Handle Pattern

The cup and handle is known to be a bullish continuation pattern, indicating an upward trend in the price. When this pattern forms, it suggests the price will likely continue moving upwards, providing traders with a solid basis for their bullish strategies.