The Cup And Handle Pattern Formation
The cup and handle pattern is a popular trading pattern among the technical analysts. This is both a continuation and a reversal pattern.
The continuation pattern occurs when the price is bullish and in an uptrend. After a cup and handle pattern is formed, the price halts and again starts to move in the upward direction.
When the cup and handle pattern is formed after a downtrend it mostly signifies a reversal in trend. This shows that the downtrend is most likely ending and the uptrend is about to start.
How does the pattern look like?
The cup and handle pattern is something like how a rounded bottom pattern looks like. This pattern, however, has a cup and the handle where the price stalls a bit. This is close to the breakout point and here the price will move in the sideways direction or sometimes move even downwards. The price forms a U-shape and this is the cup of the pattern. The handle is formed by the price moving towards the downside or when the price moves on the side.
Cup and handle reversal pattern
For the pattern to form as a reversal pattern, the price should be in a downward direction. The price then starts to level and begins to rise. The price then pauses and starts to move lower or sideways to form the handle of the pattern.
When the price starts to move up from the handle you can enter a long position. This is however very subjective based on how the trader draws the trend line. The stop loss should be placed below the handles low point. This is important to control the risk in case the price does not honor the pattern and starts to fall.
The price target is to be decided on how long the pattern takes to form. If it takes a lot of time then the price target would also be higher.
Cup and handle continuation pattern
The similar set up happens when the pattern is formed after an uptrend. This is a continuation pattern. The price keeps moving higher and then declines to form the cup and the handle. The price then breaks off from the handle towards the upside and this signals that the trend is still bullish.
You can enter long into this position Bitcoin Code when the price breaks the upper handle. The stop loss has to be placed below the handles low.