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For mid-term analysis, a daily chart pattern and price breaks make sense. And for defining a broader trading strategy, chart formation on the weekly chart can also offer vital insights. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. Sometimes it forms within a few days, but it can take up to a year for the pattern to fully form. Secondly, you need to learn to identify the length and depth of a true cup and handle, as there can be false signals.
We develop high-quality free & premium stock market training courses & have published multiple books. We also thoroughly test and recommend the best investment research software. If the price reverses and declines after the pattern is confirmed, it is considered bearish, and the pattern has failed. Now that we know the traits and the anatomy of the chart formation let’s move to identification with relevant on-chart metrics.
Variations of the cup and handle pattern
His work, market predictions, and options strategies approach has been featured on NASDAQ, Seeking Alpha, Marketplace, and Hackernoon. At that point, it makes sense to exit the stock, even if the 7%-8% loss-cutting sell rule has not yet been triggered. For the weekly chart, the moving-average line traces 10 weeks’ worth of turnover. Try to limit your picks to cups that are no more than 30% or 33% deep, except for those built during a bear market. In that case, an exceptional growth stock can fall 40%, 50% or more and still make a successful breakout.
Also consider that the breakout may have started later in the day. A large increase in volume during the breakout could suggest that institutional investors are getting behind the stock. Many traders look for volume confirmation to signal that a buy is warranted.
What happens after a cup and handle pattern??
Kiril has been writing financial and investment-related content for over 5 years and has been featured many financial websites. Kiril is a CFA charterholder with over 10 years of investing experience. On the other hand, there are certain disadvantages to trading Cup and Handle Patterns. Greed, fear, hope, despair and other emotions drive stock prices.