“The CUP AND HANDLE” pattern belongs to the top five most reliable and powerful patterns I know in the stock, futures, cash currencies and any other financial market. If you want to buy stocks right before their explosive rally, keep reading. In this post, we will discuss the most important thing in CUP AND HANDLE pattern trading, What is it like and what are its components.
Smart Money and uninformed crowd-specific habits in the formation of the CUP AND HANDLEpattern. You will see for yourselves that you will always need to side with Big Capital. I have developed a very effective technique that makes it possible to align this pattern with Big Capital behavior. I’ll show you how it works. Optimal entry point, optimal values for stop-loss, and profit target; The volumes are necessary for the pattern to work like a charm.
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This is how the CUP AND HANDLE pattern looks on chart. This is a price move that at first resembles a cup and then the cup’s handle. When we trade the CUP AND HANDLE pattern, we expect that, after a minor downturn, there will be a breakout and the price will continue to rise. A previous trend is a necessary condition for forming the pattern. The stock price is within the uptrend, reaches a certain peak, and starts to drop.
At first, this downward move reaches stagnation, forming the base of the cup, and then the price rallies almost to the previous high level. This is the time when the traders who entered the position close to the first high begin to sell; the price goes down, forming a cup handle.
My approach to trading and investing is based on patterns in Big Capital behavior. I found out that any technical analysis pattern would work like a charm only if Big Capital intended to move the stock or futures price up. Once the Big Capital patterns in the financial markets come into action—conditions are created under which the crowd starts to sell; Big Capital buys stocks or other securities from them at a reduced cost as it expects an upward price move.
When major players intend to continue moving the stock or futures price up, their actions result in the formation of the cup base—here they buy stocks or futures at low cost from investors in doubt. Little by little, the price begins to rally again, reaching approximately the previous peak level. At this point, the uninformed investors, who bought the stock or futures in the high area and did not sell at the level of stagnation, keeping a losing position, feel extremely happy about the possibility of closing the position without a loss or with a minimum loss.
This is where they begin to sell chaotically, and that’s why a second peak forms the pattern’s handle.At the moment when the crowd closes almost all their positions, Big Capital enters the market, increasing volumes, and the stock or futures price starts its rally. Little by little the crowd enters the market and helps to boost the new trend move. This pattern is formed at its best when the high on the cup’s right side is formed at the same level or a bit below the previous high level. When forming the handle, the stock or futures price has a slight downward drift.
If the handle drops below the mid-line, it is most likely that this pattern will not work. So we have two main points: old high #1 and new high #2. They serve as a certain critical level for the upper trend line of the CUP AND HANDLE pattern. When the market price reverts at this point and moves up again, we see that the CUP AND HANDLE pattern is formed.
That’s where things get interesting. Now I will speak about the entry into the position. It is a common belief that the most reliable entry point is right here—just above the level of the second high. Here’s my tip to you: This trend line breakout shall take place at large volumes, or an increased volume shall emerge right after passing this level. This is one of the signs that the large market powers are in the game. When trading any technical analysis pattern, it’s important to remember that the optimal entry into a position is within 5 percent above the pattern’s trend line. It is risky to buy stocks or futures after the price goes above 5% after the breakout but if you are a positional trader do not buy on breakout wait for a re-test of the pre-highs after the breakout, most of the time you will get one. This will keep you safe in case of a fake breakout but if you are a day trader then you can buy on the breakout as your stop-loss is small.
Now how long do we stay in the position? We need to measure the distance from the second high point to the cup base. The same distance applied to the handle’s bottom level gives us the target projection level. Classical stop order placement is the point just below the handle.
Now let’s talk about the duration. The best big winners that I’ve seen in different financial markets have the Cup formed for a rather long period—7 to 12 weeks, and even up to 20 weeks. So: Tip #1: Avoid handles that drop to or below the mid-line of the cup. Tip #2: Volume is the most important indicator of the CUP AND HANDLE pattern. The critical level breakout should be at the increased volume.