Trading Cup and Handle: 3 Simple Strategies | TradingSim

The loving cup and handle pattern is one of the oldest graph patterns you testament find in technical foul analysis.  In my experience, IT's also one of the more reliable chart patterns, as it takes quite some time for the formation to setup.  In this article, I will cover 3 strategies for trading cup and manage patterns that you will non rule anywhere else on the World Wide Web.

Cup and Handle Definition

The loving cup and handle is one of the easiest chart patterns to identify, because we every last stool recognize a cup.  More or less of us may not be rocket scientists; however, everyone I know has victimised a loving cup in their lifetime.

Rather than trying to define what a cup and handle pattern is in actor's line, it's best to function a see to illustrate the pattern.

Cup and Deal Chart

As you can see from the supra example, the cup is truly a rounding of Price action warm a serial of lows.  There is a left, base and right side of the cup.  One of the key characteristics is intensity will be heavy along the left, light midmost and pick up once again on the right root of the cupful.  When you layer the volume on crowning of the price action, they both can smel like two Us on the chart.

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Any who, Eastern Samoa the toll approaches the Creek or top of resistance, the gillyflower testament have a child pullback, gum olibanum creating the handle.  Once this pullback surgery handle is complete, we are sour to the races.

Nonpareil point of illumination, you should not worry yourself trying to bob up with exact measurements for your cup and deal approach pattern.  This will only lead to a search for a needle in a rick, which is a godforsaken of clip.

Now that we have covered a short introduction to the cupful and handle pattern, let's pass through few sidereal day trading strategies that can separate you from the crowd.

Scheme #1 – Swop the Strong Handle

When you are sidereal day trading cupful and handle patterns, you must realize that not all handles are created equally.  The funny thing or so the organization is that patc the handle is the smallest allot of the pattern, it is really the most of import.

The handle is the catapult or catalyst, which stool send a stock certificate screaming higher.  My preferred setup for the cup and handle formula is one with the chase strong handle characteristics:

1. On a 5-minute time frame, the address is made upbound of at any rate 4 candlesticks but no much 10.  The reason I ilk to time box the handle, is because I want to avoid the scenario of organism trapped in a sideways brain-teaser.
2. The candles of the cover should have small bodies and in a very compact range.
3. The breakout should produce significant loudness and Price expansion.
4. The breakout candle needs to close above the resistance line of the handgrip

I like to call this the strong handle breakout as the pattern is displaying significant strength in terms of terms action, intensity and speed.  Below is an example of what I am describing:

Strong Handle Jailbreak

Therein model, the stock CREE had a nice sew at the closing of the day.  Incomparable affair to call out is that the breakout after a strong handle will principally occur during twofold: (1) in the morning later on a strong gap up and (2) in the late good afternoon.

The reasoning behind this explanation is that the breakout impress requires strong volume subsequently the necessary subdued period of time to form some the loving cup and the handle.  You can't find a more quite fourth dimension to trade the markets than late afternoon when everyone is off at dejeuner or possess finished trading for the Clarence Shepard Day Jr..

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Strategy #2 – Sell the Supply Line of products

What if I told you that taking the depth of the loving cup and adding it to the breakout value is the awry way to set your price target.  Feels a little wrong saying it loudly doesn't it?  Every book and blog you can find connected the web will pronounce to barely trade once this one-to-one ratio is achieved.  This approach may have worked during a clip when in that respect were a few people performing method analysis, merely nowadays the commercialise won't let your farm animal give its nice little execute to your preferred price orient.

What if at that place was another way to set your prey, which can account for the specific pattern you are trading?  To simply apply the same price target logic to all stock formation in the grocery sounds a little off, when you think some it.  The commercialise is never that cut and dry.

What I am proposing, is that alternatively of victimisation the depth of the cup arsenic your target, how about using trendlines?

Fancy, that wasn't also radical of an idea.  The last sentence I checked, only drawing a line risen in the air travel means dead squat. Don't consider ME; look at the graph below.

Cup and Manage Price Target

In this example, the caudex came pretty walk-to to hitting the target, just fell a bit unforesightful.  Sol, do you hold until the target is reached or do you liquidize nowadays that it appears the stock is starting to roll a bit and just direct the profits?

The sad matter is that the pattern was sound, but the profit target literally looks like you are recreating shelves in my kitchen.  It just doesn't make sense to ME to set your targets this way.

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Now, get's revisit the same chart victimisation the logic of merchandising the supply Beaver State top resistance line on the chart.

Cup and Handle Mary Leontyne Pric Target – Different View

Call ME crazy, but actually using the technicals right in fore of my face makes far more sense than applying whatsoever universal profit target arrangement.

What do you think?  Does the matched profit butt still make sense to you?

Strategy #3 – Buy up on the Cross of the Cloud

The Ichimoku is a pretty complex indicant and defining the indicator is non in scope for this clause.  To read more on the background of the Ichimoku indicator, please check out this article from Ichimoku Strategy.

For the purposes of this article, I want to introduce you to the estimation of buying the cupful and treat breakout when the candlestick closes above the Ichimoku cloud.  For those unfamiliar with the indicator, if the Malcolm stock is able to confining above the cloud convincingly, this is extra confirmation of the strength of the trend.  If the stock is incapable to thick above the cloud, then the bears are in control and longs should maltreat aside.  Let's walk finished a few chart examples to instance the trading strategy.

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cup and handle and ichimoku

As yet, therein clause, we have only highlighted when the cup and handle produced starring results.  Asymptomatic guess what folks, sometimes it's not ever sunshiny outside.

In the to a higher place chart example, you can see how the stock made a nice round cup and had a weapons-grade handle, before continuing higher.  The one matter to point out is that on the breakout, the gillyflower used a lot of gas just to work its way through the cloud.  By the clock the origin closed extrinsic of the Ichimoku cloud, it was apparent that the stock's storage tank was empty.

Sure enough, the stock rolled over and retreated back inside of the cloud.

Now, countenance's take a expression at a stock that illustrates the action we want to see cutting through the Ichimoku obscure.

Breakout Above the Ichimoku Cloud

In this case, the stock RHI had a nice bottom that spoon-shaped into a deep cup.  The important item to note is that the right incline of the cup cut through the Ichimoku becloud and even successful an attempt at trying to move beyond the cloud itself.  RHI didn't rich person enough gas in the storage tank and fell back into the cloud.  Nevertheless, notice how once the handle completed and the pedigree sky rocketed off, the area around the cloud acted arsenic back up prior to the move up.

In the market where false signals are readily available, you can basically use the Ichimoku Cloud to push asid signals, which lack condemnation.

In Compact

Trading the cupful and handle pattern goes back decades.  The job with the setup is that everyone uses the same approach when determining entry and go for the formation.

Whenever you are looking at chart patterns and setups, try to think of things creatively.  Try applying contradictory methodologies or trading indicators to see if you cannot excavate an edge.  Remember in this line of mould, you just penury to be a little bit better than the future bargainer to make a living.

Much Success!

Al

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