• Invest
    Investment Suite
    Stocks
    Mutual Funds
    Future and Options
    IPO
    Exchange Traded Funds
    Commodity
    Stockcase (Stock Baskets)
    Currency
    Non Convertible Debentures
    Sovereign Gold Bond
    Exclusive
    NRI Account
    Private Client Group
    Features
    SipIt
    MTF
    Investment Suite
    Exclusive
    Features
  • Platform
    Product Suite
    Kotak Neo App & Web
    Nest Trading Terminal
    NEO Trade APIs
    Features and Tools
    MTF
    Securities Accepted as Collateral
    Margin Requirements
    Equity Screeners
    Payoff Analyzer
    Calculators
    SIP Calculator
    Lumpsum Calculator
    Brokerage Calculator
    Margin Calculator
    MTF Calculator
    SWP Calculator
    CAGR Calculator
    Simple Interest Calculator
    ELSS Calculator
    Step up SIP Calculator
    All Calculators
    Product Suite
    Features and Tools
    Calculators
  • Pricing
  • Research
    Research Calls
    Long Term calls
    Short Term calls
    Intraday calls
    Derivatives calls
    Pick of the week
    Top Monthly Picks
    Research Reports
    Fundamental Research Report
    Technical Research Report
    Derivative Research Report
    Research Calls
    Research Reports
  • Market
    Stocks
    Market Movers
    Large Cap
    Mid Cap
    Small Cap
    Indices
    Nifty 50
    Bank Nifty
    FinNifty
    Nifty Midcap India
    VIX
    All Indian Indices
    Mutual Funds
    SBI Mutual Funds
    HDFC Mutual Funds
    Axis Mutual Funds
    ICICI Prudential Mutual Funds
    Nippon India Mutual Funds
    All AMC's
    IPO
    Upcoming IPO
    Current IPO
    Closed IPO
    Recently Listed IPO
    Stocks
    Indices
    Mutual Funds
    IPO
  • Learn
    Resource
    Market Ready
    Kotak Insights
    Infographic
    Podcast
    Webinars
    Youtube Channel
    Quarterly Results
    Investing Guide
    Demat Account
    Trading Account
    Share Market
    Intraday Trading
    IPO
    Mutual Funds
    Commodities
    Currency
    Futures & Options
    Derivatives
    Margin Trading
    Events
    Budget 2024
    Muhurat Trading
    Share Market Holiday
    Market Outlook 2024
    Resource
    Investing Guide
    Events
  • Partner
    Business Associates
    Fund Expert
    Kotak Connect Plus
    Startup connect
  • Support
    FAQs
    Circulars
    Bulletins
    Contact Us
    Forms Download
    Get your Statement

How to Trade Cup and Handle Pattern in Share Market?

  •  4m
  • 0
  • 20 Sep 2023
How to Trade Cup and Handle Pattern in Share Market?

This article aims to explain the cup handle pattern in the share market, how to trade it, and what to watch out for to improve your chances of success.

A Cup and Handle Pattern is a bullish continuation pattern that denotes a strengthening of a security's price followed by a breakout, which is followed by a sharp increase in the security's price. The handle denotes the moment of breakout, while the U-shaped cup denotes the period of consolidation.

Cup and handle chart patterns was credited to an American technical analyst.

“How to Make Money in Stocks”, published by William J. O'Neil in the late 1980s. O'Neil provided an in-depth analysis and identification of the cup and handle in a few spots. According to him, cup and handle chart patterns can endure from seven to sixty-five weeks (the majority are between three and six months). From the absolute peak to the low point of the price pattern, the normal percentage correction runs from 12% to 15% to 33%.

Both short periods, like 1-minute charts, and long timeframes, such as daily, weekly, and monthly charts, exhibit the cup and handle pattern. This happens when there is a downward wave, followed by a period of stabilization, and then a rise that is roughly equal in size to the prior decline. This creates a "cup" or a U-shape. The price then moves inside the handle-forming channel sideways or downward. The handle might even be triangular.

The handle should be in the cup's upper third, smaller than the cup, and not extend below the bottom half. For instance, the handle should be between Rs. 100 and Rs. 99.50, ideally between Rs. 100 and Rs. 99.65, if your cup's form is between Rs. 99 and Rs. 100. Pattern trading should be avoided if the handle is too deep since it eliminates the majority of the cup's profitability.

A continuation pattern or a reversal pattern might also be visible on a cup and handle chart. A cup and handle reversal pattern develops when the price is in a downturn over time, reversing the trend and forming a bowl with a handle as the price starts to rise. When there is an uptrend, a continuation pattern appears. The price rises, shapes into a cup and handle, and then rises.

Many traders are interested in learning how to trade using the Cup and Handle Chart Pattern. It's important to recognize and understand the following crucial points:

  1. Instead of having a sharp V pattern, the cup should form a U shape. A rounded U shape represents a tendency to rise gradually from the lowest levels.

  2. The handle emerges from the cup's edge, moves downward, and ultimately breaks into a price that overcomes the obstacle. The price of the handle drops below the levels of the cup and resistance. Instead of growing overnight, the handle does so over time.

  3. A bullish trend is only seen as ongoing when the upward rise from the handle is accompanied by sizable volumes.

  4. Past Trend, rather than following a break-jerk, such a pattern should develop after a few months of steadily rising prices. If the pattern develops following a protracted rising trend, it can be a frail pattern with little room for growth.

  5. Normally, the cup depth is up to a third of the edge price, but under exceptionally choppy circumstances, it can reach a depth of 12 deep from the edge price.

  6. Similar to how the handle develops over one to two weeks, the cup often forms over one to six months or one year and is not an overnight trend or pattern. A gradual formation shows a steady tendency.

  7. A trader can spot a breakout by paying close attention to the precise volume increase that follows the cup and handle emerging. A good moment to start a long position is when the stock crosses the resistance price following the breakout. Traders can also follow the resistance line. To reduce losses and profit from upswings, traders can keep the handle at the bottom.

The cup and handle should be utilized in conjunction with other signals and technical indicators, as with all technical indicators, before making a trading decision. According to practitioners, the cup and handle are two areas with certain restrictions. First, it can take some time for the pattern to emerge fully, which might cause rushed conclusions. While a cup and handle typically form between one month and one year, it can also happen relatively rapidly or take several years to establish itself, making the time range uncertain in some situations.

Another issue is the depth of the cup-shaped part of the structure. A deeper cup can occasionally produce a misleading signal, while a shallower cup occasionally can. The cup can occasionally form without a distinctive handle. One final drawback of many technical patterns is that they might be unreliable inequities that are not liquid.

Conclusion

The Cup and Handle pattern can be a useful tool for controlling risks and locating suitable entry points in your trading plan. However, combining this pattern with additional signals and indications is essential for a thorough study. Remember that these patterns may take some time to form, so exercise patience fully. Explore Kotak Securities for knowledgeable advice and a variety of investment opportunities.

FAQs on Cup and Handle Pattern

A technical indicator known as a cup and handle indicates a security's price movement resembling a "cup" before turning inverted. This decline, or "handle," is meant to indicate a favorable moment to invest in and go long on a certain asset.

When prices increase and move slightly higher than the pattern's resistance level after it forms, this pattern failure, also referred to as the "failed cup and handle pattern," takes place.

Yes, the cup handle pattern can be bearish. It occurs when the price forms a rounded bottom (cup) followed by a short consolidation (handle) before a potential downtrend.

The cup and handle pattern is moderately bullish. It suggests a potential upward trend reversal, but it's essential to consider other factors and confirmatory signals before making trading decisions.

Did you enjoy this article?

0 people liked this article.

What could we have done to make this article better?

Read Full Article >
Enjoy Free Demat Account Opening
+91 -

personImage
Enjoy Free Demat Account Opening
+91 -