Cup with Handle - Fidelity (2024)

FAQs

Is a cup and handle bullish? ›

A cup and handle is a technical chart pattern that resembles a cup and handle where the cup is in the shape of a "u" and the handle has a slight downward drift. A cup and handle is considered a bullish signal extending an uptrend, and it is used to spot opportunities to go long.

Basic Characteristics Of The Cup With Handle

The stock needs to show a 30% uptrend from any price point, but it must be before the base's construction. Or, the stock must show a minimum 20% increase from a prior breakout. The cup with handle must be at least seven weeks long.

The cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over 1-4 weeks. The buy point occurs when the stock breaks out or moves upward through the old point of resistance (right side of the cup).

Two decades of trading analysis reveal that the cup and handle pattern boasts a 95% success rate during bullish markets, yielding an average profit of +54%. Although reliable and precise, this chart formation can be tricky to identify.

In his influential book, “How to Make Money in Stocks“, O'Neil highlights the cup and handle as a reliable indicator of bullish stock opportunities. He observed that stocks displaying this pattern often outperform the market in the following year.

Cup and Handle Price Targets and Stop Losses

Targets are typically 10% to 30% above the entry price, or about at a 3 to 5:1 reward risk.

To establish a take-profit target, we can measure the depth of the cup, let's say INR 50, and add it to the breakout point, resulting in a target price of INR 350 per share. This indicates the potential upside for the stock. It's important to continuously monitor the price action after entering the trade.

The psychology behind the inverse cup and handle pattern is rooted in market sentiment and behavioural finance. This bearish pattern reflects a shift from optimism to pessimism among traders. Initial Uptrend: The formation starts with an upward movement, where traders are generally bullish, driving prices higher.

Guidelines for Identifying the Cup and Handle Pattern

Cup Formation: Look for a U-shaped curve in the chart that resembles a cup. The left side of the cup should be relatively straight and the right side should curve upwards. Cup Depth: The depth of the cup should be at least one-third of the previous uptrend.

What is the moving average for the cup and handle? ›

Moving Averages for the Cup and Handle Pattern

Typically, traders use the 50-day and 200-day moving averages to identify the overall trend and provide support or resistance levels. During the cup formation, the price often moves towards or slightly below the 50-day moving average, which acts as a dynamic support level.

In a trending market, the price can remain above a Moving Average for a long period of time. Now, A cup and handle invalidation would be if you see a large sell-off from Resistance, as it tells you the market is not ready to head higher.

The Cup and Handle pattern is where the price initially declines, then levels off and begins to rise again, thus resembling a cup with a handle. The Cup and Handle pattern is often considered a bullish signal. However, there is also the reverse cup and handle, which represents a bearish trade.

The cup and handle pattern is a technical analysis pattern used by traders and investors to identify potential bullish trends in stock prices. The cup and handle pattern is typical for the clues that it gives traders in a bullish market, signalling that prices may potentially increase in the future.

The cup and handle is a longer term continuation pattern, normally observed on weekly charts. The cup and handle forms as an intermediate/secondary cycle correction before the primary cycle resumes its up-trend. The pattern is a form of (ascending) triangle. The cup pattern should take a minimum of 7 weeks to form.

A cup and handle pattern is formed when there is a price rise followed by a fall. The price rallies back to the point where the fall started, which creates a “U” or cup shape. The price then forms the handle, which is a small trading range that should be less than one third of the size of the cup.

The inverse cup and handle pattern in forex is a bearish chart pattern. It features an inverted U-shaped cup followed by a small upward retracement (the handle). This pattern suggests that sellers are gaining control, and prices are likely to decline further once the neckline is broken.

Inverted Cup and Handle Pattern

The cup has an inverted “U” shaped pattern made by consecutive highs followed by consecutive lows in the candlestick chart. As this pattern is considered a reliable bearish pattern, its breakout point can lead to a downtrend.