The cup and handle pattern, also known as the cup and handle pattern, is an important chart in the forex market. This is one of the models that investors are interested in, applied in technical analysis. Join Forex Trading to discover more about this model!
Find out what cup and handle pattern.
The cup with handle pattern is a popular Forex model in the forex market. It is described as a cup shape with handles. The bottom of the cup forms a “U” shape and its handle forms a smaller “V” shape.
This model has many advantages that are popular with traders. Therein lies the potential for significant profits. One of the strengths of this model is the possibility of large price increases. When the pattern is correct, the rate of price increase is usually equivalent to the depth of the cup. Usually ranges from 20% to 35%. However, the model also has disadvantages that need to be noted. In particular, the formation of this model often takes place over a long period, usually taking from 7 to 65 weeks. Therefore, patience and experience are important to recognize patterns early.
See more: Analyze & forecast trend effective candlestick pattern
Components of cup and handle structure
In the chart analysis, we see a large U-shaped structure representing the cup. This is followed by a smaller structure, usually a slight reduction, that forms the handle or handle. Learn immediately the 2 main components of this model.
Cup part
A U-shaped or V-shaped price structure describes price fluctuations after a series of declines. And starting to show signs of support formation and growth progress.
- Before the cup-with-handle model appears, the market needs to go through a period of growth of at least 30%. This is very important and often overlooked. Cup and handle pattern is indicative of trend continuation. Therefore, it is necessary to have a previous price increase period (at least 30%, possibly up to 50%, 100%…).
- The time to form this model ranges from 7 to 65 weeks, usually about 3-6 months.
- The ratio adjusts from the top of the cup to the bottom of the cup (depth of the cup). Usually from 12-15% to 33%, or it can be higher up to 40-50%. Models with a correction ratio higher than 50% are often unsuccessful.
- The bottom of a “U” shaped cup is usually more reliable than a “V” shaped one.
- The tops of the right and left cups do not have to be equal.
Handle part
When the stock price climbs to the top of the cup model, many investors will begin to withdraw to take profits. This leads to a lot of selling, reducing the stock price and creating a correction. As the selling pressure gradually reduces, the stock price will begin to recover and continue its upward trend. At this time, the stock price can surpass the previous peak, creating a cup-with-handle pattern.
- The speculative part usually tends to go down and is above the MA200 line. For this part, it is best to lie about 1/3 of the cup body (the reduction rate is usually from 5% – to 10%, and should not exceed 15%).
- Usually, the handle has a small trading volume, and when liquidity is reduced the better. Because this shows that the seller has no intention of selling.
- Once the handle breaks through the resistance level, the pattern will be confirmed as complete.
- Breakouts are often accompanied by a sudden increase in trading volume. Usually increases by 40 – 50% compared to the average level of previous sessions.
- The time needed to form the handle is from 1 to 4 weeks.
Trading strategy with the Cup with handle model
Similar to the bullish candlestick pattern, the cup and handle pattern is also considered simple in Forex trading. To execute a buy order based on this model, one of the following methods can be applied:
Method 1: Enter an order when breaking out from the top
When they see the price begin to surpass the highest point of the cup-with-handle pattern, many traders will open orders. This is a popular method, but it is not without risks. Even so, if the price continues to move in the direction predicted by the pattern, it can result in significant profits for the trader.
Method 2: Enter an order in the support zone
Entering an order when the price returns to the previous support zone at the handle can be a safe strategy. This way of confirming the pattern will help minimize risk. For example, an investor can place an order at 30-31 when the price returns to retest the handle zone. However, investors may miss the opportunity and risk losing profits if the price increases and they enter the order too late.
Method 3: Enter orders at the bottom
This is the method that brings the highest profit rate but also has the most potential risks. Participants implement this strategy by opening positions right at the area considered at the bottom of the chart. Without waiting for the signal to break out of the peak before confirming the pattern. This method emphasizes opening positions early. And profit when the pattern develops in the right direction and the price begins to increase sharply. However, this method is usually only suitable for investors who are experienced or willing to accept a high level of risk.
See more: Exness – Trade With The World’s Leading Broker Exness
Notes when using cup and handle pattern
When using the cup with a handle pattern in trading, there are some important notes you need to consider:
- Before making trading decisions, make sure you understand patterns, including how to identify and confirm them.
- The most important thing is to determine a reasonable entry point. Typically, the entry point is placed at the price level that breaks off the top of the handle. Make sure there is confirmation that identifies the pattern.
- Set a reasonable level of risk and stick to it to protect your investment.
- Before entering an order, clearly define your profit target. This helps you have a clear plan and minimize the impact of emotions in trading decisions.
- Frequently, the cup-with-handle pattern is confirmed with other indicators. Such as moving averages, RSI, or MACD can help increase the probability of trading success.
- Don’t forget to practice and test your strategy before putting it into practice. This helps you better understand the performance of the cup-with-handle model under different market conditions.
Conclude
In short, the cup and handle pattern offers quite a few benefits but is not easily identifiable. Requires careful observation over long periods of time. Therefore, in addition to understanding knowledge, you need to learn from the experience of professional traders. Follow Forex Trading to update more information about trading strategies in the foreign exchange market. Good luck!
Frequently asked questions
Cup handle model how to identify?
The cup-with-handle pattern is often recognized through the shape of the price chart. With a “cup” for the bottom and a “handle” for the top. Its appearance after a downtrend can signal a potential reversal.
What time frames can the cup-with-handle model be applied to?
The cup-with-handle model can be applied to all time frames, from short-term to long-term. But it is most effective on long-term charts.
What indicators does the cup-with-handle model need to combine with?
To enhance accuracy, the model is combined with technical indicators. For example, MACD, RSI, or moving averages.
