The Cup And Handle Pattern In The Forex Market
The ‘cup and handle’ pattern is a pattern that has a high probability, but is rarely found. If we can find and trade with the characteristics of this pattern then the results can be quite profitable. In this article exemplified trading with cup and handle pattern.
The ‘cup and handle’ pattern or the cup-like pattern and its handle is a pattern that has a high probability, but is rare. Unlike double top , double bottom , head and shoulders , flags , or symmetrical triangles are often formed, this cup and handle pattern takes a relatively long time to form. However if we can find and trade with the characteristics of the pattern then the results can be quite profitable. Here is an example of the pattern of cup and handle pattern ever formed on the daily chart EUR / USD:
If we observe the appearance of price movement on the chart above is like a cup of coffee and handle (cup and handle). So how do we interpret this coffee cup pattern?
AB: This pattern begins when the price movement falls sharply. This downtrend movement forms the left side of the cup.
BC: In this phase the price movement still tends to bearish, but the deceleration rate slows and tends to move sideways for a relatively short period by forming the resistance level (4). This sideways movement forms the bottom of the cup.
CD: in this phase the price movement rises sharply after breaking the resistance line (4). This uptrend movement is almost as strong as the AB phase downtrend movement, and forms the right side of the cup.
DE: In this phase the price movement still tends to be bullish, but the decline rate slows down and tends to move sideways for a relatively short period by forming the resistance level, and the movement of the sideways will form the handle of the cup. This section is important because it will determine the next market movement.
Trading with cup and handle patterns
Traders who have traded with this pattern will be able to predict that the market is forming this pattern when the bullish signal appears on the sideways movement at the bottom of the cup (BC phase).
Buy in the sideways phase at the bottom of the cup and handle pattern
In the example above we see bullish engulfing candle formation indicating bullish movement (1), and also bullish candle penetrating resistance level (4). With these 2 signals, a trader can open a buy position when the bullish candle is above the resistance level (4), that is (3), with a stop (stop loss) level at the lowest bullish candle level (2). The profit target can be determined at the level that approaches (A), that is when this pattern starts, when the price movement drops sharply, or the trader can close a position when price movements begin to slow down and tend to move sideways which indicates that the handle will form.
Buy or sell after the breakout handle
The handle can be broken (break) up or down, and in this pattern the price movement trend after the break of the handle will tend to be strong, especially if the handle is penetrated upwards, usually the price will move to a minimum along the depth of the cup. In the example above the handle is broken down after the price has broken the uptrend line (support) at (5). Traders can open a sell position when the bearish candle closing price is below the support of the uptrend line.
Here’s an example for a tip-up penetration, still on EUR / USD pair:
As shown in the picture above, the handle is formed triangle pattern (triangle) which suggests forwarding trend (trend continuation) when break. After the price has broken through the resistance handle, the trader can open the buy position when the bullish candle closing price is above the resistance handle level, ie at (F). Profit targets can be determined at least along the depth of the cup, or in this case the distance between the entry level (resistance handle level) and the lowest level of the bottom of the cup, which is 914 pips.
Inverted cup and handle pattern
The opposite of the cup and handle pattern is the inverted cup and handle pattern. The principle is the same just the direction of price movement opposite to the pattern of cup and handle. If the pattern of cup and handle there are many opportunities to buy then the pattern is a lot of opportunities to sell. Here is an example of an inverted cup and handle pattern on a GBP / USD daily pair:
Movement of cup and handle pattern: downtrend – sideways – uptrend – sideways – break.
Movement of inverted cup and handle patterns: uptrend – sideways -downtrend – sideways – break.