How To Trade Cup & Handle Pattern: META
What Is The Cup & Handle Pattern?
The cup and handle pattern is a continuation pattern that occurs after a preceding bullish or bearish trend. This formation provides traders with some distinctive features. The ‘cup and handle’ term translates to the bar chart pattern. The cup presents as a bowl shape whilst the handle is depicted as a downward slanting period of consolidation.
Eat a cup of tea?
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 and handle pattern is considered to be a bullish continuation pattern therefore, identifying a prior uptrend is essential. This can be done using price action techniques or technical indicators such as the moving average.
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 handle resembles a consolidation generally in the form of a flag or pennant pattern. This should be downward sloping but does consolidate sideways in some instances similar to a rectangle pattern.
The breakout signal can occur in different ways depending on the trader’s preference. Some trader’s look at the resistance level taken from the horizontal between the highs of the cup. Once this breaks that level, entry will be confirmed. Other traders use a break of the handle trendline as a long entry point.
Hoe To Trade The Cup & Handle Pattern?
Trading stock with the cup and handle pattern differs slightly when using it to trade forex and equities. The volume function is often used in stock trading as a spike in volume indicates the breakout which confirms the entry signal.
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 chart sample above exhibits a cup and handle formation with a clear prior uptrend as marked by the trendline showing higher highs and higher lows. A moving average may also be used instead to confirm the uptrend.
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. This method is less aggressive, but the patience of additional confirmation can shield against a false breakout with regards to the handle channel.
Stop levels are often taken from the low of the handle. This can then be projected by a factor of two to arrive at a take profit (limit) with a ratio of 1:2 risk-reward ratio. Other traders prefer Fibonacci extensions as a gauge for limit levels. This choice comes down to trader preference.
Cup within a cup formation
The daily chart shows the cup and handle for META above started to form since July last year to Feb 2023. It took another month to produce the handle as Feb was a choppy trading season this year.
If we zoom into details, we can identify a smaller cup and handle pattern in the 4 hour timeframe below.
Breakout & retest
In the lower timeframe, the cup was formed between early Feb and early Mar. The price retraced to form the right handle and broke out of 195 to a highof 205 late last week.
The price action is undergoing a consolidation phase with a retest at 190/195. ⚠️ Looking at calls above 198 and puts below 190 this week. Don't forget to add your stop loss as protection.
🚨 If you find the information useful, I'd appreciate if you could click Like 👍, Comment 💬 & Repost 🔄 this article found at the bottom of your screen. Follow me for the latest news, trading ideas & strategies to ride the market daily with profits! 🤑
@TigerStars @CaptainTiger @MillionaireTiger @Daily_Discussion @Tiger_SG @TigerPM
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Nice