Shopping Cart

No products in the cart.

Go to top
About Us

The Cup and Handle Swing Trading Strategy Scanning, Entries, and Exits

cup and handle pattern time frame

A good strategy here would be to check for a bullish RSI divergence or a golden crossover to ensure that the bottom is in and the cup will move to the right. But there have been instances of false breakouts, trapping unwitting investors. In case you are concerned about the same in regards to the cup and handle formation, a MACD crossover — when the MACD line crosses above the signal line — is a good indication. If you are a position trader, the idea should be to look for this chart pattern on the weekly or even monthly timeframe.

cup and handle pattern time frame

Let us now use everything we have on the cup and handle pattern to look at real-world examples from the crypto and stock markets. As mentioned earlier, the cup and handle pattern works with almost every timeframe. However, it is more accurate when viewed on a higher timeframe — such as a daily, weekly, or even monthly chart.

What is the success rate of a cup and handle?

The target of the Cup and Handle pattern is the height of the cup added to the breakout of the resistance trend line connecting the two highs of the cup. If a Cup and Handle forms and is confirmed, the price should increase sharply in short- or medium-term. These pro-trading resources can make your analysis of the cup and handle pattern increasingly concrete. Even though there is no guaranteed way to avoid false breakouts, you can focus on complementary indicators, clear price breaks, and price action monitoring to lower risk. According to his book, this formation comes with the ability to help traders predict breakouts.

The tables turn once again when the decline stalls high in the broad trading range, giving way to narrow sideways action. Short sellers lose confidence and start to cover, adding upside fuel, while strong-handed longs who survived the latest pullback gain confidence. Relative cup and handle pattern time frame strength oscillators now flip into new buy cycles, encouraging a third population of longs to take risks. A positive feedback loop sets into motion, with price lifting into resistance, completing the final leg of the pattern, and breaking out in a strong uptrend.

How successful is the cup and handle pattern?

To reiterate, different zones of the cup and handle pattern are supposed to show different volume metrics. The formation of the cup should be followed by dropping volumes. And when the handle pattern forms, the volume should go even lower before pushing out or surging to validate the price breakout. The left side of the cup is like a steep fall from a high, as it showcases the price decline. The region where the left side formation ends and the right side formation starts is marked as the depth of the cup.

What are the rules for cup and handle formation?

The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right-hand side, and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.

Additionally, traders should be aware of certain factors that could invalidate the pattern. These include if the stock gaps up or down on significant news, if there is a major change in the company’s fundamentals, or if there is a large dividend payout. The handle forms when the price stalls and ranges sideways before heading upwards again. A breakout occurs when the stock price pushes above the resistance level created by the highs of the handle. Volume should increase on the breakout, signaling increased investor interest and confidence in the stock.

Sector Rotation Explained: Is It Profitable? We Check the Data!

How to earn an extra 13 – 26% a year without reading financial reports, studying chart patterns, or following the news. O’Neil included time frame measurements for each component, as well as a detailed description of the rounded lows that give the pattern its unique teacup appearance. Consider a scenario where a stock has recently reached a high after significant momentum but has since corrected, falling almost 50%. At this point, an investor may purchase the stock, anticipating that it will bounce back to previous levels. The stock then rebounds, testing the previous high resistance levels, after which it falls into a sideways trend.

Leave Comments