Cup And Handle Pattern-2022

Table of Contents

The cup and handle pattern is a chart pattern that appears in the price charts of financial assets such as stocks, currencies, and commodities. It is considered a bullish reversal pattern, meaning that it signals a potential change in the direction of the asset’s price trend from bearish (downward) to bullish (upward).

The pattern consists of two distinct price movements:

The cup: This is a rounded bottom formation that resembles a “U” shape. It is usually formed over a period of several months and indicates a period of consolidation or sideways price action.
The handle: This is a short-term price dip that occurs after the cup formation. It is usually shallow and brief, and is followed by a rally.

The cup and handle pattern is completed when the price breaks above the “resistance” level, which is the high point of the handle. This break is considered a buy signal, as it suggests that the price trend may be reversing and heading upward.

It’s important to note that the cup and handle pattern is not always a reliable indicator of a price trend reversal. It’s always a good idea to use other technical and fundamental analysis tools to confirm any potential trade signals generated by the cup and handle pattern.

How this metric functions:

The cup ought to have a bowl-shaped or rounded bottom. Equal highs on both sides of the cup would make for the ideal pattern, but this is not always the case.

A pullback creates the handle after the peak on the right side of the cup has formed. The handle, which represents the consolidation before breakout, can sometimes reverse up to one-third of the advance of the cup.

It is possible to spread the cup out over 1 to 6 months, and occasionally longer. The handle should form and finish over a period of 1-4 weeks.

The stock’s breakout or upward movement through the previous point of resistance marks the buy point (right side of the cup). Increased volume should cause this breakout.

By measuring the distance from the right cup’s top to bottom and multiplying that figure by the buy point, one can determine the price goal that will be reached after the breakout. Only use this as a general guideline.