What is cup handle model? Trait of cup with handle

cup handle pattern is one of the popular chart patterns in the Forex market. It provides information to investors about the market’s preparedness for further fluctuations and guidance on how to place trading orders to achieve profits. To further explore the Cup Handle pattern, as well as its effective trading technical characteristics and charts. Please follow the article below from Forex Trading!

What is a cup with a handle pattern in the Forex market

What is the cup with handle model? Its outstanding advantages in the Forex market

What is the concept of the cup with a handle?

The Cup Handle pattern in Forex trading was popularized in the 1980s by William J. O’Neil, a technical analyst. In this pattern, the price line forms a shape like a cup. Technical charts with a wide base and a handle can be either a “U” or a smaller “V” shape.

The Cup Handle technical chart model is popular because of its ability to bring high profits. If the pattern is properly formed, the expected price increase will be equal to the depth of the bottom of the cup, usually ranging from 20 to 35%. However, this type of model also has the disadvantage that the formation time is quite long, usually taking from 7-65 weeks. Therefore, investors need to have patience and experience to recognize the pattern early.

See more: Analyze & forecast trend effective candlestick pattern

Components in the Cup Handle technical diagram

Below is an example of a technical chart in a Cup Handle pattern. This diagram includes two main parts: the cup body and the handle. The price line creates a long decline in a large U shape, forming the body of the cup. Immediately followed by a smaller decrease, which is the handle.

Cup Body:

• The cup body often forms after a price increase (uptrend).
• The distance from the rim of the cup to the bottom of the cup usually ranges from 12-15% and can be up to 30%.
• After that, the price increases from the bottom to the top of the cup. The two tops of the cup mouth are usually not equal, with the top on the right being higher. 
• The time to form the cup body usually takes about 7 weeks or more (not fixed).

Handle Part:

• After the body of the cup is formed, connecting the two tops of the cup mouth will create a resistance line. The price then adjusts downward.
• This second reduction should ideally be about 1/3 of the length of the stem (usually 5% to 10%, but should not exceed 15%). Then the price will increase again.
• When the handle breaks out of the previous resistance line, the pattern will be confirmed.
• The handle usually forms in about 1 to 4 weeks.

How to recognize the inverted Cup Handle pattern

Although the Cup Handle model is quite easy to recognize. But in reality, there may be cases where the price line does not meet the necessary criteria. This can lead to a failed wedge model. Therefore, traders should pay attention to distinguishing which models are truly trustworthy to choose to trade.

• Cup Bottom Length: A cup with a “U” shaped bottom typically provides a stronger signal than a “V” shaped bottom.
• Depth: The cup body is reduced by more than 50%, and the likelihood of the model failing is high.
• No Grip Form: Many models do not decrease to form the handle but rise immediately.
• Trading Volume: Trading volume in the body of the cup usually decreases, and in the handle also shows low trading volume when the price adjusts downward. A sudden increase in trading volume during the breakout session is a sign that the pattern is reliable.
• Retest: Although not all models have a retest period. But if it does, a retest of the previous resistance level does not necessarily require touching the rim of the cup again.

Trading strategy with the Cup Handle model for traders

Currently, there are three popular trading methods with the cup handle model that many investors apply:

Enter the order when the price breaks out of the cup and handle

A popular trading strategy is to decide to open a position. It shows the complete preparation of the model because it integrates safety and good profit potential. Guide investors to consider and take steps carefully before making trading decisions.

Enter an order at the bottom of the cup-with-handle model

A risky trading method with the highest profit potential is to open a position right at the bottom of the handle. This part does not need to wait until the price breaks out to complete the model. This is a brave approach, requiring investors to have confidence and be willing to accept risk. This is to take advantage of maximum profit opportunities from the Cup Handle model.

Enter an order when the price tends to repeat the inverted cup-with-handle pattern

In this method, the investor will decide to open an order when the price returns. It is in contact with the support line (the line connecting the two tops of the cup mouth) that was broken before. This approach requires investor acumen and precision. However, there is a potential risk due to the possibility that the price will not return as predicted. But it also provides an opportunity for investors to enter the market at the best price when this pattern is confirmed.

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Meaning of the inverted cup-with-handle pattern in the Forex trading market 

Based on the model, investors can analyze price fluctuations in the market in the past. From there, make predictions trend of stock prices. This model brings important meanings as follows:

• Forecasting price trends: The Cup Handle model can help investors predict a sharp increase or decrease in stock prices. When an inverted head and shoulders pattern appears, investors can consider opening a buy order. This is to take advantage of the bullish technical chart trend. On the contrary, when a pattern appears, holding it upside down. Investors may consider opening a sell order in anticipation of a price drop.
• Time to form: The Cup Handle pattern requires a significant amount of time to form and perfect. Therefore, investors need to have patience and meticulous observation to identify this model accurately, avoiding making inaccurate judgments.
• Combined with other technical indicators: In practice, finding an ideal Cup Handle pattern can be difficult. Therefore, investors often combine the pattern with other technical indicators. Such as RSI, and MACD to make more accurate and reliable forecasts of price trends.

Summary:

We hope that useful information from Forex Trading has helped you gain a deeper understanding of the cup handle model in Forex investment. By capturing trend forecast signals like this model. Investors can choose the appropriate time to make transactions.

FAQs:

How to identify cups with handles in the price chart?

The price chart often appears when the price drops suddenly before—a cup-shaped bottom then forms, after which the price rises again near the peak. The important point is that the bottom of the cup does not exceed the previous high.

Stop loss and profit target when trading with?

When trading the model, there are the following notable profit goals:

• Place your stop loss below the bottom of the cup.
• Set your profit target at the top of the cup.
• Adjust flexibly based on charts and market conditions.

How to manage risks when trading with Cup Handle?

To manage risk when trading cups with handles:

• Determine entry and stop loss points based on the structure of the cup.
• Set profit targets above the top of the cup or other support/resistance levels
• Ensure position size with capital management and risk/reward potential ratio.
• Do not exceed risk limits and do not abuse leverage.
• Monitor charts and markets to adjust stop losses and profit targets