Cup and Handle

 

The Cup and Handle is a bullish continuation pattern that signals a potential breakout after a period of consolidation.

1️⃣ Identify the Pattern

• Cup Formation: A rounded bottom that forms after a price decline, resembling a "U" shape.

• Handle Formation: A small pullback or consolidation following the cup, usually sloping slightly downward.

2️⃣ Entry Strategy

• Breakout Entry: Enter the trade when the price breaks above the handle’s resistance (previous swing high).

• Aggressive Entry: Some traders enter during the handle formation, anticipating the breakout.

3️⃣ Stop-Loss Placement

• Conservative Approach: Place the stop-loss below the lowest point of the handle.

• Aggressive Approach: Place the stop-loss below the midpoint of the handle.

4️⃣ Target Price (Take Profit)

• Measure the depth of the cup and add that distance to the breakout level.
  📌 Target Price Formula:
  Breakout Level + Cup Depth = Target Price

5️⃣ Volume Confirmation

• A breakout should be accompanied by a surge in volume, confirming strong buying interest.

6️⃣ Risk Management

• Ensure a Risk-Reward Ratio of at least 1:2.

• Avoid trading if the handle is too deep (more than 50% of the cup’s depth).