TRB/USD
The "cup and handle" is a technical analysis pattern used in the stock market and other trading markets. It is a bullish continuation pattern that marks a consolidation period followed by a breakout. The pattern resembles the shape of a tea cup, with the cup being a rounded bottom and the handle being a smaller consolidation to the side.
Key Characteristics of the Cup and Handle Pattern
Cup Formation:
Shape: The cup is typically U-shaped and resembles a rounding bottom. It indicates a period where the stock or asset was in a downtrend, followed by a gradual recovery back to the previous high.
Duration: The cup can form over a period of 1 to 6 months. The longer the cup, the more significant the pattern.
Handle Formation:
Shape: After the cup is formed, the handle appears as a short-term consolidation or slight pullback. It often takes the shape of a small descending channel or flag.
Duration: The handle usually lasts from one week to a few weeks.
Breakout:
Trigger: The pattern is confirmed when the price breaks above the resistance level defined by the peak of the cup.
Volume: Ideally, the breakout is accompanied by a surge in volume, indicating strong buying interest.
How to Trade the Cup and Handle Pattern
Identify the Pattern:
Look for the characteristic U-shape followed by a smaller consolidation period.
Ensure that the handle is forming near the previous high of the cup.
Set Entry Point:
Enter the trade when the price breaks above the resistance level (the peak of the cup) on increased volume.
Set Stop-Loss:
Place a stop-loss order below the lowest point of the handle to manage risk.
Set Target Price:
Measure the distance from the bottom of the cup to the breakout point and project that distance upwards from the breakout point to set a target price.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.