Forex Chart: Cup and Handle
The Cup and Handle pattern (CAH) appears to resemble a cup of tea. This CAH pattern is a continuous bullish pattern where the price is on the ascending trend delayed for a temporary correction and then continued with the upside direction after completing the pattern. If you use a daily timeframe (usually a daily timeframe), this pattern takes up to a matter of months.
This CAH pattern is preceded by an upward movement to then corrected (fall) because the seller dominates while on the pair movement. This correction motion will form the first part of the CAH pattern. After the correction is finished, the pair’s price is usually trading in a narrow range in some time without a clear trend (sideways). Next, the pair will move up as the previous trend towards the top. Well, the last part of the CAH pattern, ie the handle (grip) will move in a small decreasing ranging. When the CAH pattern is perfect, usually the pair’s price will move following the previous big trend (up).
There are several components of the CAH pattern that must be understood in order to be able to recognize potential trading signals. First is the identification of trends that occur before the CAH pattern emerges. Generally, the bigger the previous trend the smaller the potential to get a big breakout movement after the pair finish the pattern.
Forex Blog Graphics Pattern Cup and Handle
Second, the construction of the cup form itself is also important. Should be a perfect rounded up pattern. Semi-circle. The rounded up pattern gives a consolidation signal in a trend where the small investor will leave the market during a correction but the buyer will re-enter the market that will push the price back up. If the shape of the cup is too small or sharp because it is too quickly formed, it can not be the balance of the consolidation phase when the up trend. Therefore the trading signal that will appear weak.
Third, the height of the cup is also important to note. In general, the cup height is one-third or two-thirds the size of the previous uptrend. Depending on the level of market fluctuations. So if the previous trend distance of 1000 pips then the cup height in the range of 333 pips or 666 pips.
This cup height can also be used as a target setup when a breakout handle occurs and finishes the pattern perfectly.
Fourth, is the handle. It is a small corrective movement after rounded up and forming two peaks to get the breakout level.
Well, if these components you can already identify then you can do the setup or trading plan with 1: 1 RRR as high as the cup.