Day Trading The Cup and Handle

The cup and handle can occur in all time frames. In this video I explain this pattern on the daily and the weekly chart. We have been looking at this pattern for weeks in our trading service that we provide . The bottom line is this pattern It creates a cup pattern and the handle next to it. The price moves sideways or drifts downward within a channel. It forms the handle. The handle may also take the form of a triangle.

The handle needs to be smaller than the cup as you will see in the video. The handle should not drop into the lower half of the cup.. If the handle is too deep, erasing most of the gains of the cup, then this is not a true cup and handle and I would stay away from this trade.

A cup and handle may be a reversal or continuation pattern, this is interesting this some patterns are bullish and some bearish, for example a head and shoulders pattern can only occur in an uptrend.

Cup and Handle Entry Method

After handle forms then you can move to decide on your entry.... The handle often takes the form of a sideways or descending channel or a triangle. Buy when the price breaks above the top of the channel or triangle. When the price moves out of the handle, the pattern is considered complete, and the price is expected to rise.

Of course no pattern is a guarantee and I see more and more false breakouts than ever before.

Cup and Handle Stop Loss
Its important to use a stop loss if the price drops, instead of rallying, after buying a breakout from the cup and handle formation. The stop-loss serves to control risk on the trade by selling the position if the price declines enough to invalidate the pattern.

Place a stop loss below the lowest point of the handle. If the price oscillated up and down a number of times within the handle, a stop loss might also be placed below the most recent swing low.

By having the handle and stop loss in the upper third to half of the cup, the stop loss stays closer to the entry point, which helps improve the risk-reward ratio of the trade. The stop-loss represents the risk portion of the trade, while the target represents the reward portion.

Target of the Cup and Handle Trading Pattern

I keep it simple with my method, all I do is when the pattern moves higher I take the equal distance of the break out and then exit. For example if there is 50 points in the handle then I will get our 50 points after the break out.