What is the #pattern 'Cup with Handle'?
The 'Cup with Handle' pattern is a classic figure in technical analysis used by traders to predict the continuation of an upward trend. This graphical tool got its name due to its resemblance to the shape of a cup, followed by a small decline that forms the 'handle'.
The pattern was first described by William O'Neil, a renowned investor and author of the CAN SLIM system. He noted that the 'Cup with Handle' often precedes significant price increases, especially if the pattern forms after a prolonged trend.
What does the pattern look like?
The figure consists of two key parts:
#Cup.
This is a wide and deep price decline, followed by a gradual recovery that forms a rounded shape.Handle.
After the cup is completed, the price usually corrects in the form of a small pullback. This correction resembles a 'handle' and often signals the completion of the pattern formation.
After the handle is completed, the price breaks through the resistance level and begins a new upward movement.
Stages of pattern formation
Start of the cup:
The price falls from the previous peak, creating the downward part of the cup. This stage is accompanied by high sales volume.Bottom of the cup:
At this stage, the price decline slows down and the market begins to stabilize. Trading volumes decrease, indicating a possible reversal.Recovery:
The price begins to rise, forming the second half of the cup. Trading volumes increase again, confirming interest in the asset.Formation of the handle:
After reaching the level of the previous peak, the price corrects downwards. This correction should be shallow (usually no more than 15% of the cup's height).Breakout of the resistance level:
After the handle is completed, the price breaks through the resistance level, confirming the continuation of the upward trend.
Characteristics of the pattern
Duration:
The formation of the cup can take from several weeks to several months, depending on the timeframe.Depth:
The depth of the cup is usually between 30% to 50% of the initial price level.Volumes:
During the decline, volumes decrease, while during the rise, they increase. A breakout of the resistance level is accompanied by a surge in volumes.Proportions:
The ideal pattern appears symmetrical, with equal time and height parts of the cup.
How to trade the 'Cup with Handle' pattern?
1. Pattern Identification
On the chart, identify the rounded shape that resembles a cup. Ensure that a handle is formed after the cup.
2. Wait for the breakout
After the handle is completed, wait for the breakout of the resistance level. The breakout should be accompanied by high trading volumes.
3. Order placement
Open a long position immediately after confirming the breakout.
4. Target levels and stop-losses
The target level is determined by adding the height of the cup to the breakout point.
It is recommended to set the stop-loss slightly below the lower boundary of the handle.
Advantages of the pattern
Reliability.
The 'Cup with Handle' pattern is considered one of the most accurate graphical tools.Clarity.
The simplicity of identification makes it suitable for traders of all levels.Clear targets.
The pattern allows for precise identification of price target levels.
Tips for beginners
Practice on a demo account:
Before using the pattern in the real market, practice on historical data.Additional indicators:
Use indicators such as RSI or MACD to confirm signals.Keep an eye on the news:
Make sure there are no factors that could affect the price movement.
The 'Cup with Handle' pattern is a powerful tool for analysis and trading that helps traders predict the continuation of an upward trend. However, for its successful application, it is important to consider not only technical aspects but also the market context.
As William O'Neil said:
"Technical analysis is an art backed by science. The better you understand the market, the more successful your trades will be."
With this pattern, even novice traders can feel more confident on the path to profitable trading.
