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Cup and Handle Pattern Works

Cup and Handle pattern is developed by a scientist named William O Neil. It is important for the pattern to make money in the stock market. Sometimes ‘V’ shaped cup also qualifies as a Cup and Handle chart pattern. But the conviction is higher in ‘U’ shaped because of consolidation at the bottom. The handle is a pullback from the higher end of the cup rounding, triangle. The breakout from the handle’s resistance should increase the volume as confirming the same. The pattern occurs in small/large time frames as one minute and monthly charts. It will occur in the situation when a price wave down follows but a stabilized period followed by rally equal size to prior decline. The chart pattern will occur when price asset moves as resemble have a common shape like rectangular and shoulder. These will provide a logical entry point as a strop loss location to manage the risk and price target for exiting profitable trade.

The price drifts down through a channel that forms a handle. The handle should be smaller than a cup. It should not drop into the lower half of the cup and stay in the upper third. The cup and handle pattern is also called a reversal pattern or continuation pattern. Here the reversal pattern occurs when the price is a long-term downtrend. So the formation of a cup and handle reverses the trend and the price starts rising. The continuation pattern occurs at uptrend so price rises and forms the pattern. The process will remain continues rising. In this cups with U shape bottom will provide a strong signal. This signal will avoid cups with a sharp V bottom. The cup should not deep to avoid handle deep and form the top half of the cup pattern. The volume should be low, as the price will decline and remain low than the average. It should increase when a stock moves high and back up to test the previous high.

Example

If the cup is formed between $99 and $100.Here handle should be formed between the range of $100 and $99.50and $100 and $99.65. At the time if the handle is deep, it erases the gain of the cup and avoids trading patterns.

Attributes

Pattern type :This pattern has a continuation

Indication :It is Bullish and rearish Type

Breakout confirmation : At the time of above-average volume, the stock closes above the upper trendline drawn from the top of the handle.

Measuring : The price target is obtained by measuring the distance from the right lip to the bottom of the cup. Then add it to the price level of the right lip.

Volume : The increased volume follows the shape of the cup with higher volume as the left lip form that decreases volume. It is as the bottom of the cup form, and raise the volume towards the right lip that continues on the breakout.

Conclusion

The pattern is made popular by William O’Neil and expanded into all sorts of trading scenarios. So the Traders know the cup and handle as a bullish continuation pattern is an accurate predictor of the sizable breakout. To learn more about stock chart patterns and take advantage of technical analysis check out the entire library of predictable chart patterns. It includes a comprehensive description and images to recognize chart pattern scenarios to become a best trader.