Cup and Handle
Stock Scalpers LLC.
Cup and Handle Pattern
June 22, 2020
What exactly is a Cup and Handle? (CAH)
The cup and handle (CAH) is a chart formation that predicts trend continuation. The
CAH is quite often preceded by an uptrend. Eventually the upward trend begins trading sideways and then the price begins to fall.
This downtrend is limited though and the second half of the “cup” is created by an
uptrend. It is important this “cup” formation is gradual and not steeply “V” shaped. There should be a gradual change from lower highs and lows to higher highs and lows.
When the price returns to the same level as the left edge of the “cup” the price often
drops, forming the handle of the “cup.” This downtrend is short and the buyers again
take control, pushing the price upwards.
CAH formations are completed when the price is pushed upwards through the “handle” and an upside breakout is created.
That means the CAH is a continuation pattern as the initial uptrend is never broken.
Trading With CAH formations
While it would seem entering the trade at the bottom of the “cup” would be the most
profitable, the risk to reward ratio is simply too high. The most probable place to enter
the CAH formation is during the “handle.” Again, the handle typically forms during a
downtrend, so an upside breakout of this trendline is the perfect entry point.
- Increased trading volume is often a sign this breakout is looming.
- A stop-loss can be set JUST underneath the “handle” trendlines.
- Plan profit taking/exit points by taking the depth of the “cup” and adding it
to the breakout location.
© Stock Scalpers LLC.
Virginia Beach, Virginia
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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