How To Trade The Inverse Cup and Handle Pattern

In that case, you would likely withstand a pullback that touched the handle’s top at 0.125. Usually, when assets grow, the prices increase more gradually compared to the declining markets. Such a price behaviour is due to panic selling, driven by fear of losses. The classic cup and handle is a common occurrence in bullish markets.

In a trending market, the price can remain above a Moving Average for a long period of time. Now, you don’t want to put your stop loss at the exact low of the handle because the market could trade into that area of value cup and handle reversal and reverse higher. The last thing you want to do is short the market because it’s likely to breakout higher. The best cup and handle patterns have a shallow retracement on the handle (not more than 1/3 of the cup).

Target

These patterns are nothing but simple tools that work in understanding trading through technical analysis. A trailing stop-lossmay also be used to get out of a position that moves close to the target but then starts to drop again. If the stop-loss is below the halfway point of the cup, avoid the trade. Unfortunately, Thomas Bulkowski doesn’t give us any clear and solid answer on what kind of statistical expectancy you can expect by using the cup and handle strategy.

If you’re short, you want to exit your trades before swing low or Support. If you’re long, you want to exit your trades before the swing high or Resistance. The Cup and Handle pattern confirmation comes when the price breaks above the “handle” — and that’s where you can https://www.bigshotrading.info/ enter a trade. 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 risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.

Limitations of the Cup and Handle Pattern

If the handle dives too deep and erases most of the gains of the cup, you should avoid trading the pattern. From the chart, you can see that the price formed a cup between June and October 1999. By November, it has formed a handle and eventually broke above the handle. First, we want to write that the cup and handle pattern is also called cup WITH handle pattern. Investopedia does not provide tax, investment, or financial services and advice. Investing involves risk, including the possible loss of principal.