The cup and handle pattern is slightly more complex as opposed to other chart patterns which can be tricky for some traders to identify. The steps below outline a simple guide to identify the cup and handle chart pattern successfully:The cup should form more of a ‘U’ shape as opposed to a ‘V’ with the high points on either side of the cup being approximately even.The breakout signal can occur in different ways depending on the trader’s preference.
Forex trading does not normally use this function, and instead involves other more conventional breakout confirmation methods such as breaks above resistance. The rest of the process is the same when trading the cup and handle pattern.The image above is a monthly chart of the popular hotel and casino company Wynn Resorts Ltd. The chart exhibits a cup and handle formation with a clear prior uptrend as marked by the trendline showing higher highs and higher lows.
The chart shows two potential entry points denoted by the green arrows. The first entry takes place on the breakout above the upper end of the price channel akin to a bullish flag with a spike in volume as verification of the move up. The second entry uses the resistance level between the highs on either side of the cup as a key price level. Once this is broken, traders can look to go long.
We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Information presented by DailyFX Limited should be construed as market commentary, merely observing economical, political and market conditions. This information is made available for informational purposes only. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice.
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