What is the cup and handle chart pattern?
The cup and handle pattern is a bullish continuation pattern formed in two parts, the cup and the handle. The pattern will start after a strong uptrend which eventually reaches a high, it then slowly retraces with people selling off and taking there profit before a steady rise in value because of the new low price, this formed the U shape “cup”. Once the price gradually moves higher it will retest the old high, this causes further retracement in the form of a flag pattern, this falling range will complete the pattern forming the “handle”.
How to trade the cup and handle pattern
When trading the cup and handle pattern you are waiting for a bullish continuation after the pattern has complete, to do this you need to wait for a bullish break out. There are two ways to trade a breakout of the cup and handle pattern. either by waiting for a breakout of the handles range or the less aggressive entry would be to wait until the breakout of the highs of the “cup”
The less aggressive way is to wait for a breakout of the cup, this shows new highs are forming the price is ready to continue upwards, entering at this point means there is a higher probability the price will continue upwards but this will come at the cost of missing a few points if you would have entered more aggressively.
The more aggressive way is to wait for a breakout of the handle, this shows the retracement forming the handle is now over and price is ready to continue upwards, entering early means there is a potential for bigger profits but price may stall around the previous highs.