Cup Formation Stock

price movement

To protect against losses, many investors set a stop-loss order at a level below the cup and handle pattern. The first example shows a shallow cup and handle pattern developing over the course of approximately two to three months. The cup features a gentle pullback after a strong bullish movement and the right side of the cup reaches the same price level as the left side of the cup. The false breakout in the handle on August 13 occurs on low trading volume, demonstrating the importance of using trading volume as a method of confirming the breakout.


However, after the period of consolidation, the stock witnessed another uptrend creating the right edge of the cup. At the high point, it achieves the price of Rs.90.5, recovering from the downtrend that started a few months prior. The measured move for a cup with handle is the distance from the right-hand top of the cup to the bottom of the cup. One of the most common chart patterns is the cup and handle pattern. Learn more about the cup and handle pattern, how to identify it on a stock chart, and how you can use it in your trading. Traders use several popular chart patterns to help them make informed decisions about where to put their money.


In most cases, the handle should not dip below the top third of the cup for it to be a cup and handle pattern. William O’Neil’s CANSLIM method shows better performance than the overall market (S&P 500) in backtests, even though it has lagged in recent years. Although we might argue O’Neil is the innovator of the cup and handle strategy, it’s just one part of many in his methodology.


Several things can help you identify this continuation pattern, particularly the shape of the chart pattern. Cup and handle patterns typically are seen to occur on a daily chart after a strong trend has progressed for one or more months. Inverted cup and handle patterns are also possible during downtrends and signal bearish continuations.

  • Mid-point maximum – The mid-point of the handle should be above the mid-point of the base.
  • The Opening range Breakdown One of my favorite day trading setups is an opening range breakdown on a morning gap.
  • Thomas Bulkowski’s backtests are also lacking strict buy and sell rules, and he argues the cup and handle strategy is inferior to many other patterns.
  • The cup and handle breakout point is when the pattern is complete, and traders can expect a continuation of the price uptrend.
  • FYI, a moving average is a trend-following indicator that smooths out price movements, and shows you the average value of a security over a certain period of time.
  • Proper technical analysis puts the odds of winning in your favor, but you must always be prepared to cut your loss if the pattern fails.

Divergence occurs when prices move in a certain direction, but the oscillator is moving in the opposite direction. You can use candlestick formations to determine your entry point. You want to see a shooting star or an inverted hammer form right below the EMA line. But this doesn’t mean that you will enter a short position immediately once you spot this chart pattern. The breakout was confirmed when prices broke down from this level.

The and handle pattern resembles a U shape with a horizontal line, generally drifting downward, like a teacup. The price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point. A double bottom pattern is a technical analysis charting pattern that characterizes a major change in a market trend, from down to up. A bull is an investor who invests in a security expecting the price will rise. Discover what bullish investors look for in stocks and other assets. Consider a scenario where a stock has recently reached a high after significant momentum but has since corrected, falling almost 50%.

The stop-loss controls risk on the trade by selling the position if the price declines enough to invalidate the pattern. When the price breaks below the handle, it signals traders to exit long positions or enter a short position. A stop-loss order is then placed above the handle and a profit target is calculated by the height of the cup subtracted from the handle breakout point. Alternatively, traders could double the size of the handle and subtract that from the handle breakout point.

Automated Trading

RHI didn’t have enough gas in the tank and fell back into the cloud. Nevertheless, notice how once the handle completed and the stock sky rocketed off, the area around the cloud acted as support prior to the move up. So far, in this article, we have only highlighted when the cup and handle produced stellar results.


The upward momentum carried through following the cup and handle. As mentioned, we may see triangles, or we may also see trading ranges or channels. Below is an example of a EUR/USD cup and handle daily chart, where the handle represents a channel or trading range angled down.

Interpretation of a Cup and Handle Pattern in a Chart

In this article, we backtest the cup and handle pattern strategy. Because the cup and handle pattern is difficult to define with strict buy and sell rules, we refer to other research. DXY upward movement continues In the cup handle formation, the targets are determined according to the fibonacci. Once this happens, the the cup advances and forms a U, and the price drifts downward slightly forming the 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. There are several ways to approach trading the cup and handle, but the most basic is to look for entering a long position. The image below depicts a classic cup and handle formation.


Useful guide, it’s definitely a pattern to always be watching for. You can watch the video on the pre-breakout as I believe it’ll answer your question. I’ve just come across your work – since last week’s online trading summit – and it’s outstanding.

In the cup and handle chart pattern, a stop-loss is placed at the lowest point of the handle or the lowest point of the most recent swing. The stop-loss is usually located in the upper third part of the cup, corresponding to the position of the handle. Here, it hits the resistance level, and the handle starts forming.

No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.

Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. Once the has reached the top of the cup, it starts moving sideways or slightly downwards to form the handle. If the handle drops below the lower half of the cup, it is no longer a ‘cup and handle’ pattern.

First described by William O’Neil in his book ‘How to Make Money in Stocks’ in 1988, the formation of this chart pattern depicts a good buying opportunity. The cup is formed as the price consolidates in a small range following a sharp decline. This consolidation forms the “handle,” which is typically a shorter-term downtrend. Investors typically trade an inverse cup and handle by selling when the price breaks below the handle.

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