A cup and handle price pattern on a security’s price chart is a technical indicator that resembles a cup with a handle, where the cup is in the shape of a “u” and the handle has a slight downward drift.
The cup and handle is considered a bullish signal, with the right-hand side of the pattern typically experiencing lower trading volume. The pattern’s formation may be as short as seven weeks or as long as 65 weeks.
It may be a quaint name, but it’s an extremely powerful pattern. Here are the basic elements to look for:
- Prior uptrend: at least 30%.
- Base depth: 15% to 30%.
- Base length: at least seven weeks (starting with the first down week).
- Handle: at least five days long (count starts with first down day).
- Buy point: peak in the handle, plus 10 cents.
- Buy range: up to 5% above the ideal buy point.
In the second part of this series on chart reading, we learned about support and resistance. The bottom of the cup with handle is an area of support (a floor), and the peak in the handle is the most recent point of resistance (a ceiling).
The buy point is based on the most recent area of resistance (i.e., the peak in the handle) because it’s a testing ground. Can the stock punch decisively through that resistance in heavy volume? If it does, it’s a sign of strength, and a sign that large investors are buying aggressively and therefore pushing the stock higher.
Note that we add 10 cents to peak of the handle to determine the buy point. We do that just to make sure the stock is pushing through that ceiling, and not just bumping its head against it.
On the day of a breakout, look for volume to be at least 40% higher than the stock’s daily average. Such a spike in trading is a sign of conviction. A breakout attempt on below-average volume shows a lack of enthusiasm, which could mean it’s just a head fake.
EURJPY Breakout From Cup With Handle
About SNAPBOTS
SnapBots(www.snapbots.io) is an artificial intelligence (AI) research firm based in BVI with global users. Driven by its focus on fields of machine learning and deep learning, it aims to supply trading bots as a service.
However, crypto asset investing, trading, staking can be considered a high-risk activity. Please use your extreme judgement when making the decision to invest in, sell, or to stake Crypto Assets.
