How to Trade the Cup and Handle
Hello trader, hope you are having a profitable month.
so,
There are several ways to approach trading the cup and handle,
but the most basic is to look for entering a long position.
Place a stop buy order slightly above the upper trend line of the handle.
Order execution should only occur if the price breaks the pattern’s resistance.
Traders may experience excess slippage and enter a false breakout using an aggressive entry.
Alternatively, wait for the price to close above the upper trend line of the handle, subsequently place a limit order slightly below the pattern’s breakout level,
attempting to get an execution if the price retraces. There is a risk of missing the trade if the price continues to advance and does not pull back.
A profit target is determined by measuring the distance between the bottom of the cup and the pattern’s breakout level and extending that distance upward from the breakout.
For example, if the distance between the bottom of the cup and handle breakout level is 20 points, a profit target is placed 20 points above the pattern's handle.
Stop-loss orders may be placed either below the handle or below the cup depending on the trader’s risk tolerance and market volatility.
Limitations of the Cup and Handle Pattern
Like all technical indicators, the cup and handle should be used in concert with other signals and indicators before making a trading decision. Specifically, with the cup and handle, certain limitations have been identified by practitioners. The first is that it can take some time for the pattern to fully form, which can lead to late decisions. While one month to one year is the typical timeframe for a cup and handle to form, it can also happen quite quickly or take several years to establish itself, making it ambiguous in some cases.
Another issue has to do with the depth of the cup part of the formation. Sometimes a shallower cup can be a signal, while other times a deep cup can produce a false signal. Sometimes the cup forms without the characteristic handle.
so,
There are several ways to approach trading the cup and handle,
but the most basic is to look for entering a long position.
Place a stop buy order slightly above the upper trend line of the handle.
Order execution should only occur if the price breaks the pattern’s resistance.
Traders may experience excess slippage and enter a false breakout using an aggressive entry.
Alternatively, wait for the price to close above the upper trend line of the handle, subsequently place a limit order slightly below the pattern’s breakout level,
attempting to get an execution if the price retraces. There is a risk of missing the trade if the price continues to advance and does not pull back.
A profit target is determined by measuring the distance between the bottom of the cup and the pattern’s breakout level and extending that distance upward from the breakout.
For example, if the distance between the bottom of the cup and handle breakout level is 20 points, a profit target is placed 20 points above the pattern's handle.
Stop-loss orders may be placed either below the handle or below the cup depending on the trader’s risk tolerance and market volatility.
Limitations of the Cup and Handle Pattern
Like all technical indicators, the cup and handle should be used in concert with other signals and indicators before making a trading decision. Specifically, with the cup and handle, certain limitations have been identified by practitioners. The first is that it can take some time for the pattern to fully form, which can lead to late decisions. While one month to one year is the typical timeframe for a cup and handle to form, it can also happen quite quickly or take several years to establish itself, making it ambiguous in some cases.
Another issue has to do with the depth of the cup part of the formation. Sometimes a shallower cup can be a signal, while other times a deep cup can produce a false signal. Sometimes the cup forms without the characteristic handle.
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