The Cup Handle Pattern is one of the quite good price patterns and is used by investors when investing in forex. This model also has another name, Cup and Handle. Join Learn Forex Trading to immediately learn about the characteristics and trading methods of this model. How to apply the most suitable trading strategy, let’s refer to it!
Characteristics and ways to trade with the Cup handle pattern model
Cup handle model with a shape like a cup. Consisted by the body part is the letter “U” and the arm part is the letter “V”.
What ingredients are needed to create cup handle candlestick patterns?
The Cup handle pattern candlestick model will consist of two main parts: the cup and the handle. With the price line falling, it will form a U shape, this is the cup part. This will be followed by a smaller decrease that will form the handle.
With the cup, when the price drops, it will start to form a bottom and go up. Once formed enough, it will result in a cup shape, a U shape, or a V shape is possible. With the handle, when the price starts to go up, investors can sell to make a profit.
If the selling force causes the price to decrease, this is the adjustment zone. Until the supply is exhausted, after an adjustment the price will recover. This is when the price will increase sharply and is also when the cup model is completed.
For cups with sloping handles, the price can be reduced by 12-30%. The handle will shift slightly downward and lie above the MA200 line. Their volume at this time will often be small and liquidity will not be good.
With the inverted Cup handle pattern model, the body will not be deep. If it is too deep, the model will fail. The closer you get to the bottom, the less trading volume will be. If you see a breakout candle, there will be a reversal at this time.
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Forex trading method of the model
When the left part of the cup forms, the price will decrease. When the discount is deep enough from 12% to 33% or more to attract cash flow, the investment begins to accumulate. Then the price increases again, and trading volume also increases, creating the remaining half of the cup.
The line connecting the two edges of the cup acts as a resistance line. Enter orders below the handle and this is quite a popular method. The ideal position is a point whose distance from the top of the cup is 1/3 of the height of the model.
Place an order when the price comes from the handle, and the sample is ready. Don’t chase if the price increases more than 5% from the top of the handle. The order points to the test zone and touches the previously broken support line. But if it doesn’t appear, investors will miss the opportunity.
With an early buy point at the bottom of the handle, if the pattern is not yet complete, a short-term target should be placed in the area where the resistance line crosses the edge of the cup. Once the price has broken out of the handle and the pattern is complete, you should consider selling the stock for a profit.
For each trading order, investors should have a stop-loss rule. A good stop-loss point is when the price has been broken out. Or have lost 5-7% of the account.
Learn about the Cup handle pattern model in forex investing
To be able to apply this model to analysis, it is necessary to clearly understand the concepts and characteristics. Besides using the cup model, you can also apply the continuation candlestick pattern or double top and double bottom chart patterns for analysis.
Basic concepts of patterns in forex trading
Investor William JO’Neil in 1988 discovered the cup-with-handle model. With just one name, we can imagine this model. This model also has another name, Cup and Handle.
With the Cup Handle pattern, a trend continuation pattern is displayed. Specifically, this model will include two inner curves of the cup. And the handle will be a smaller curve on the right side.
In a downtrend, the cup and handle will be inverted. In a model, the time to form the cup arm will be 3 times longer than the cup arm. However, there will be no specific time to form the model. It could be 1-2 weeks but it could also be several months.
The resistance and support role of the cup mouthline
There is a very important part of the design of the cup and handle model that we cannot ignore. The rim line, or horizontal line, is formed by the top of the cup and the handle.
This horizontal line reacts to the reactions of many peaks and troughs. In the process of creating the cup and handle, it acts as a very strong support and resistance line. The cup mouth line is also the basis for determining whether the price will break out of the pattern or not. It is also very important when trading the cup handle pattern.
The cup mouth line has a positive cup handle and acts as a resistance level if the price has not broken through it. If the price breaks through this level, it means the cup and handle pattern has been broken. And then it became a very strong support level. Usually, multiple bottoms are formed when the price returns to this threshold.
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Trade forex with the Cup handle pattern
For each model there will be different forex investment methods, the same goes for the cup model. Let’s see what kind of trading method there will be with this model.
In the case of the cup handle pattern, there is a break
In case the pattern is broken, investors need to place a buy order at the rim of the cup. Then wait for the appearance of a candle that breaks the rim of the cup. Specifically, wait for a strong bullish candle. Or a strong bearish candle to break the mouth line of the inverted pattern
For the positive pattern, we placed a pending buy order above the candle that breaks the rim of the cup. Or if the above candlestick is missing or too short, we can enter a buy order directly. The stop loss is below the candle.
For the reverse pattern, a sell limit order should be placed below the candle. Or you can enter directly if the ball is short below. The stop loss will be placed above the candle.
In the case of a rebound at the rim of the cup
We all know that after a breakout, the price will often pull back and test. They retested the resistance levels. Then it starts to increase or decrease depending on the trend.
Normally, pullbacks and reversals will give very nice signals. Investors can fully take advantage of this.
It can be said that this is the safest way to trade for investors. Because at that time all breakout signals were almost clearly formed. At the same time, there will also be nice entry points for everyone.
Conclude
Above is a summary of the concepts and characteristics of the Cup handle pattern. The use of the cup handle pattern is quite diverse in forex investment and can be combined with other models. For new students, Learn Forex Trading recommends that you master the basic knowledge first.
FAQs
How much capital should I keep when investing in forex?
Currently, most trading exchanges do not require capital. However, the safe capital for investors will be about $500
What indicators should the model be combined with?
Investors can combine additional indicators with RSI, Fibonacci, MA, etc.
Which trading platform is reputable for investors to open accounts?
Currently, there are many reputable foreign exchange trading exchanges. Before registering for an account, you should learn about the fees and accounts before registering.
