Cup and Handle Pattern

The “cup and handle” pattern is a large trading pattern that looks much like a coffee cup would. It has a “U” shape that is followed briefly buying a handle, which is represented by a slow downward drift. This is a reversal pattern, and a very bullish one at that. It takes a bit of time to form this pattern, as it is more often found on longer-term charts.

Looking at the example below, you can see that the main part of the pattern is shaped like a “U”, and then is followed by a slightly down trending channel. This channel is an example of the buyers taking a break before eventually surging much higher.

Cup and Handle formation.

Cup and Handle formation.

Looking at the trade below, you can see that we formed the “U” pattern over a long period of time. Once we cool off a little bit, we continue to go much higher. The handle is essentially the market trying to build up enough momentum to continue the bullish move higher. It is not until you break the top of the handle that it is considered a buy signal. However, you should keep in mind that these patterns mean much more on the higher time frames than they do the smaller ones. This is because it takes a massive amount of inertia to move the market and form a bottom over several dozen candlesticks.

Cup and Handle in action.

Cup and Handle in action.

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