One of the classic price patterns of traders is the Cup and Handle pattern. This pattern is of particular interest to experienced traders when it appears. Today, I’m going to study this special price pattern with you and how to use it in trading with the highest efficiency.
What is the Cup and Handle pattern? 2 common types of this pattern
Cup and Handle is a price pattern that occurs during an uptrend of the market. As its name, this pattern consists of 2 parts. They are the cup and handle.
The cup part looks like a U-shape. This is a slight bearish adjustment in the price before hitting the bottom of the cup and rebounding slightly. It is followed by the handle part. This is a recovery in prices located on the right side of the cup. This decrease takes place faster and less than the cup part so it is usually in the V-shape. The Cup and Handle pattern is complete when the price breaks out of the right top of the cup and goes up.
On the price chart, you should take careful observation to recognize it. The cup of the pattern is a long-lasting price accumulation and recovery period. You need to have an overview through multiple time frames to be able to recognize this classic price pattern.
Below is a practical illustration of the pattern on the H1 price chart.
Inverted Cup and Handle pattern
This is a variation of the original pattern which is in the opposite direction. The Inverted Cup and Handle pattern can either appear in an uptrend or a downtrend. After this pattern, there will often be a strong bearish momentum.
The pattern usually appears at the top of an uptrend. It is a good signal that prices will decline in the future.
How to trade with the Cup and Handle pattern
The Cup and Handle is one of the classic price patterns in Forex trading. The signals of this chart pattern are very accurate for you to enter profitable trades. I will show you how to use it in Forex and Binary Options trading. Here’s how you can get the most out of this classic pattern.
When trading Forex, you need to specify the entry point, stop-loss, and take-profit before opening an order. Details are as follows.
For the Cup and Handle pattern
+ Entry Point: After the candlestick which breaks out of the right top of the cup (resistance level) completely appears.
+ Stop-Loss: At the bottom of the pattern’s handle part.
+ Take-Profit: When the price reaches the increase equal to the height of the cup (from the bottom of the cup to the top of the cup).
For the Inverted Cup and Handle pattern
+ Entry Point: After the candlestick which breaks out of the right top of the cup (support level) completely appears.
+ Stop-Loss: At the top of the pattern’s handle part.
+ Take-Profit: When the price reaches the decrease equal to the height of the cup (from the bottom of the cup to the top of the cup).
Trade Binary Options
For Binary Options trading, you need an absolutely accurate transaction to make a profit. The retest point of the pattern is eligible for you to enter a trade.
Requirements: You should trade with a long expiration time. (If you come across this pattern on the 5-minute candlestick price chart, you should open an order with the expiration time of 45-60 minutes).
You open an order as follows.
+ Open an UP order when the price retests the previously broken resistance of the pattern (the line connecting the rim of the pattern).
+ Open a DOWN order when the price retests the previously broken support of the pattern (the line connecting the top of the pattern).
Practice and familiarize yourself with the Cup and Handle pattern today. This is one of the skills that any professional trader has.
In my article, I used images taken from the Olymp Trade trading platform. This is a broker that offers both Forex and Binary Options trading forms, which is great for practicing. If you haven’t got an Olymp Trade account yet, register one for yourself by clicking on the red box below. Good bye and wish you successful transactions.