Cup and handle crypto

Now that charting software has made access to intraday charts easier, variations of this pattern have emerged such that it can be found within intraday chart time frames. The intraday pattern operates similarly but concludes more quickly. In the Bitcoin example above, we are using a 4-hour chart. All of the necessary ingredients are present, including the volume spikes.

During the retracement portion, you want to see increasing down in volume. On the rally portion of the cup, you want to see increasing volume. Then, during the formation of the handle, trading volume will ideally shrink as both buyers and sellers are shaken out. The Bitcoin chart above also illustrates a high handle, which we discussed in the previous section. After the successful cup and handle portion of the chart, Bitcoin breaks out and accelerates higher. Inverted Cup and Handle Pattern The inverted cup is the reversal pattern indicating a momentum sell short signal signaling a bearish continuation pattern.

The chart patterns happen within a span of three to six months and volume plays a role in the completion of the pattern and the confirmation of the breakout from an uptrend. At the same time, the inverted cup top is formed when there are more sellers bidding for the price to go down.

When it happens, it indicates the end of the bull markets. The inverted handle pattern forms when the asset emerges out and begins to fall from the right side of an inverted cup. However, a true inverted handle happens when it fails to break down and finally meets the support level and attempts to break to a newer low. To spot a true inverted cup and handle pattern, the shape needs to be obvious and the trend line needs to curve up and then down like an upside-down cup.

When this reversal pattern happens, it tells you that it is not a good probability to trade if pullback or correction is not on the way. As prices approach the old high, a failed breakout traps both recent buyers and buyers at the bottom of the base. Recent buyers see their small floating gain evaporate, and buyers at the bottom of the base fear a double top reversal. Both sets of buyers exit the market; as a result of this entrapment, these buyers are nervous and slowly sell out, creating the handle of the pattern.

The handle must form in less time than it takes to form the cup. If the handle pushes too low, then it will be ineffective at trapping short sellers. An effective handle will drift lower, rather than trend lower. This sows doubt among short-sellers, who become nervous about the failed trend to the downside. As a result, they close out their positions, which adds a little buying pressure to the market, popping the price a little.

Then, new buyers enter the market as they see the technical setup complete, pushing the market above prior highs. This adds even more strength to the bullish trend. How To Use the Cup and Handle Pattern The cup and handle pattern is an effective combination to flush out weak holders.

To trade the cup and handle pattern, wait for technical levels of resistance to break. There are two areas where traders can buy the resistance break. First, draw a resistance trend line encompassing the high prices of the handle. A break at the resistance trend line is your signal to buy. The second opportunity to buy is a break above the high of the handle. The risk and stop loss on the trade will be set at the low of the handle. If the breakout is successful, then you can consider moving your stop loss to the breakeven level, locking in the trade without experiencing a loss.

The target for the cup and handle pattern is fairly simple. So long as the handle remains in the upper half of the cup, this level of price projection leads to an attractive risk-to-reward ratio on the trade.

Case Examples Here is an example of the cup and handle pattern in a Bitcoin chart from At that point, the cup of the pattern was completed and the handle was about to begin. The handle drifted lower on decreasing trading volume. The pricing of the handle remained within the upper portion of the cup, so all of the necessary ingredients were present for a bullish breakout.

Once the handle was finished, Bitcoin rallied higher on increasing volume, which led to new highs. Below is another chart, a cup and handle example for Ethereum. After correcting, the price rallied back to near the old high to finalize the cup. As the handle began to develop, its slight downward slope, coupled with decreasing trading volume, was a big clue that this may be a minor consolidation. This was a relatively long handle, but once it had finished, Ethereum rallied on increasing volume.

Indicators To Identify the Cup and Handle Pattern Aside from having a clearly defined pattern with specific entry and exit parameters, this chart pattern is a favorite among traders because it is simple to identify.

There are only four technical indicators needed to help you identify the pattern: Support and resistance Moving average on the trading volume Trend lines As you know by now, the pattern consists of two parts, the cup plus the handle. The pattern cannot be anticipated until nearly all of the cup is completed and the price is near the old high.

As a result, the trader will need to highlight the old high with a horizontal resistance line. Additionally, as the right side of the cup is created, we need to observe several bullish candles on rising trade volume. An easy way to figure this out is to place a period moving average on top of the volume. This moving average indicates the average volume for the last 50 periods.

You want to see several bullish candles with volume above the period moving average, while most of the bearish candles remain below the moving average. Features of the cup and handle pattern The cup-and-handle pattern appears after a big rally where the market needs to pause and catch its breath. The pattern has five main components, which lead to higher breakouts.

The first four components help form the name of the pattern as they form the outline of the cup with the handle. Potential pattern setting with strong uptrend The retracement of the previous rally Rebound rally rises again near previous highs In a downtrend, the price moves into a section movement Volume should increase on Rally 3, moving lower on Rally 4 more on this later After a significant increase in price 1 , the market begins to adjust to a decline 2 , forming the first half of the cup.

However, deeper adjustments are sometimes withheld. Once the bottom is formed, prices will start to rise. At this point, the cup portion of the pattern is created. Now, as prices are skyrocketing, bull market traders stop buying and wait for a breakout to occur. Traders who have bought near the previous high are grateful for it, but are still nervous.

They appreciate that the price has bounced back to its previous highs, but are uneasy about another selloff. These are considered weak hands: when you lack the confidence to stick with an investment or trading plan, or lack the assets to do it.

Therefore, you will gradually sell the asset to create a handle 4. However, as the market runs out of sellers, the volume starts to decline. The price trend is from band movements to slightly lower levels, which creates a handle to the pattern. In the end, this pattern will look like a coffee cup with a handle on the right, or handle.

The cup-and-handle pattern is confirmed when the price crosses above the high on the handle as the previous uptrend continues. The cup and handle pattern cannot exist without a previous uptrend. Therefore, the cup-and-handle pattern is frequently found within the cryptocurrency market. Cup and Handle Chart Pattern Type There are several variations of this pattern that cryptocurrency traders should be aware of.

First, the handle portion of the pattern sometimes appears above the previous overpass. Second, since markets are fractal, these patterns will form in various chart timeframes, including daily charts. This situation is considered to have a high handle. In the example above, you can see a cup with a high handle position. The handle is formed above the previous elevated, not below. The result of the pattern is locally maintained even when the breakout is higher, but then the price moves in response to decreasing volume, forming a handle.

With the easy access to daily charts through charting software, variations have appeared in these patterns, which can be found within the daily charts time frame. The daily pattern works similarly but comes to a conclusion faster. The Bitcoin example above is using a 4-hour chart. You can see everything you need, including spikes in trading volume. In the retracement section, you can see a decrease in trading volume. You can see the volume increase in the rally part of the cup.

Then, during the handle formation process, both buyers and sellers adjust, ideally reducing volume. The Bitcoin chart above also shows the high handle discussed earlier. After a successful formation of the cup and handle portion of the chart, Bitcoin breaks out, speeds up and rises higher. Inverted Cup and Handle Pattern An inverted cup refers to long-short signal momentum and is a reversal pattern that indicates the bearish continuation.

Chart patterns occur over a 3- to 6-month period and the volume serves to confirm the pattern completion and departure from the bullish trend. At the same time, more sellers bidding for the lower price create an inverted cup. When this happens, it means that the bull market is over.

An inverted handle pattern is formed when an asset appears and begins to fall from the right side of the inverted cup. However, the actual inverted handle does not break away, which happens when it finally meets the support line and tries to break out to a new low.

To discover a true inverted cup and handle pattern, the shape of the pattern must be distinct and the trend line must curve up and down like an inverted cup. When this reversal pattern occurs, it is an indication that the trade is not good unless a pullback or correction is in progress.

As the price approaches its previous high, both recent buyers and sellers at the bottom are trapped in an unsuccessful breakout. Recent buyers see their small gains disappear, and buyers at the bottom fear a double-top reversal. Both buyers leave the market. As a result of being caught in the trap, a handle to the pattern is created as the seller frets and slowly sells the asset. The handle should be made in less time than the cup. Also, the handle should stay at the top of the cup and not the second half of the cup price range.

If the handle pushes too low, it will not be effective at trapping short sellers. An effective handle moves lower instead of lowering the trend. This raises doubts among short-sellers who are nervous about a failed trend in a downtrend. As a result, short investors close their positions, which puts some buying pressure on the market and causes the price to rise slightly as well.

Then, new buyers see the technical setup complete and enter the market, pushing the market above its previous highs. This will add even more strength to the bullish trend. How to use the cup and handle pattern? The cup and handle pattern is an effective combination for kicking out weak holders. To trade in the cup-and-handle pattern, wait for the resistance level to break. There are two areas where traders can buy from a resistance collapse.

First, draw a resistance trendline including the highs on the handle. A break in the resistance trend line is a buy signal. A second buying opportunity is a collapse above handle height.

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Key Takeaways A cup and handle is a technical chart pattern that resembles a cup and handle where the cup is in the shape of a "u" and the handle has a slight downward drift. A cup and handle is considered a bullish signal extending an uptrend, and it is used to spot opportunities to go long.

Technical traders using this indicator should place a stop buy order slightly above the upper trendline of the handle part of the pattern. The pattern was first described by William J. American technician William J. O'Neil included time frame measurements for each component, as well as a detailed description of the rounded lows that give the pattern its unique teacup appearance.

As a stock forming this pattern tests old highs, it is likely to incur selling pressure from investors who previously bought at those levels; selling pressure is likely to make price consolidate with a tendency toward a downtrend trend for a period of four days to four weeks, before advancing higher.

A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. It is worth considering the following when detecting cup and handle patterns: Length: Generally, cups with longer and more "U" shaped bottoms provide a stronger signal. Avoid cups with sharp "V" bottoms. Depth: Ideally, the cup should not be overly deep. Avoid handles that are overly deep also, as handles should form in the top half of the cup pattern.

Volume: Volume should decrease as prices decline and remain lower than average in the base of the bowl; it should then increase when the stock begins to make its move higher, back up to test the previous high. A retest of previous resistance is not required to touch or come within several ticks of the old high; however, the further the top of the handle is away from the highs, the more significant the breakout needs to be.

How to Trade the Cup and Handle There are several ways to approach trading the cup and handle , but the most basic is to look for entering a long position. The image below depicts a classic cup and handle formation. Place a stop buy order slightly above the upper trend line of the handle. Traders may experience excess slippage and enter a false breakout using an aggressive entry.

There is a risk of missing the trade if the price continues to advance and does not pull back. For example, if the distance between the bottom of the cup and handle breakout level is 20 points, a profit target is placed 20 points above the pattern's handle. The subsequent decline ended within two points of the initial public offering IPO price, far exceeding O'Neil's requirement for a shallow cup high in the prior trend.

The subsequent recovery wave reached the prior high in , nearly 10 years after the first print. The stock broke out in October and added 90 points in the following five months. Specifically, with the cup and handle, certain limitations have been identified by practitioners.

The pattern is confirmed when prices break above the high of the handle as the previous uptrend continues. The cup and handle pattern cannot exist without a prior uptrend. As a result, the pattern is found frequently within the crypto market. Types of Patterns There are a couple of variations to this pattern that crypto traders need to be aware of. First, there are times when the handle portion of the pattern develops above the old high. These situations are considered to have a high handle.

In the above example, we see a cup with a high handle. The handle forms above the old high, rather than below. The result of the pattern remains the same where it is a minor breakout higher, but then prices trade sideways on declining volume to form the handle. The pattern is confirmed when the market breaks above the highest price of the handle. Now that charting software has made access to intraday charts easier, variations of this pattern have emerged such that it can be found within intraday chart time frames.

The intraday pattern operates similarly but concludes more quickly. In the Bitcoin example above, we are using a 4-hour chart. All of the necessary ingredients are present, including the volume spikes. During the retracement portion, you want to see increasing down in volume. On the rally portion of the cup, you want to see increasing volume.

Then, during the formation of the handle, trading volume will ideally shrink as both buyers and sellers are shaken out. The Bitcoin chart above also illustrates a high handle, which we discussed in the previous section. After the successful cup and handle portion of the chart, Bitcoin breaks out and accelerates higher. Inverted Cup and Handle Pattern The inverted cup is the reversal pattern indicating a momentum sell short signal signaling a bearish continuation pattern.

The chart patterns happen within a span of three to six months and volume plays a role in the completion of the pattern and the confirmation of the breakout from an uptrend. At the same time, the inverted cup top is formed when there are more sellers bidding for the price to go down. When it happens, it indicates the end of the bull markets.

The inverted handle pattern forms when the asset emerges out and begins to fall from the right side of an inverted cup. However, a true inverted handle happens when it fails to break down and finally meets the support level and attempts to break to a newer low.

To spot a true inverted cup and handle pattern, the shape needs to be obvious and the trend line needs to curve up and then down like an upside-down cup. When this reversal pattern happens, it tells you that it is not a good probability to trade if pullback or correction is not on the way. As prices approach the old high, a failed breakout traps both recent buyers and buyers at the bottom of the base.

Recent buyers see their small floating gain evaporate, and buyers at the bottom of the base fear a double top reversal. Both sets of buyers exit the market; as a result of this entrapment, these buyers are nervous and slowly sell out, creating the handle of the pattern. The handle must form in less time than it takes to form the cup. If the handle pushes too low, then it will be ineffective at trapping short sellers. An effective handle will drift lower, rather than trend lower.

This sows doubt among short-sellers, who become nervous about the failed trend to the downside. As a result, they close out their positions, which adds a little buying pressure to the market, popping the price a little. Then, new buyers enter the market as they see the technical setup complete, pushing the market above prior highs. This adds even more strength to the bullish trend.

How To Use the Cup and Handle Pattern The cup and handle pattern is an effective combination to flush out weak holders. To trade the cup and handle pattern, wait for technical levels of resistance to break. There are two areas where traders can buy the resistance break. First, draw a resistance trend line encompassing the high prices of the handle. A break at the resistance trend line is your signal to buy.

The second opportunity to buy is a break above the high of the handle. The risk and stop loss on the trade will be set at the low of the handle. If the breakout is successful, then you can consider moving your stop loss to the breakeven level, locking in the trade without experiencing a loss.

The target for the cup and handle pattern is fairly simple. So long as the handle remains in the upper half of the cup, this level of price projection leads to an attractive risk-to-reward ratio on the trade. Case Examples Here is an example of the cup and handle pattern in a Bitcoin chart from At that point, the cup of the pattern was completed and the handle was about to begin. The handle drifted lower on decreasing trading volume. The pricing of the handle remained within the upper portion of the cup, so all of the necessary ingredients were present for a bullish breakout.

Once the handle was finished, Bitcoin rallied higher on increasing volume, which led to new highs. Below is another chart, a cup and handle example for Ethereum. After correcting, the price rallied back to near the old high to finalize the cup.