Cup and Handle
Forex Genuine Online Trading
Forex genuineOnline Trading - Cup and Handle: This pattern is a reversal or continuation bullish formation developed by William O’Neil. The reversal pattern develops at the bottom of a trend while a continuation pattern develops during an uptrend in the market. It can last several weeks or months.
- The market initially forms a top then begins to decline, finding support at the bottom of the cup shape.
- The retracement is typically one thirds to two thirds of the previous advance.
- Prices then advance back up to the former top, meeting resistance and completing the U formation. Don’t look for perfection in the formation of the cup shape. Obviously a sharp V retreat will not fill the requirements but it may not exactly trace the shape of a semi-circle.
- The market fails to break through to higher prices and consolidates making a partial retreat.
- The duration of this consolidation period typically lasts anything from 1 to 4 weeks.
- Finally
the market breaks out of consolidation
to higher prices. Volume should increase as an indication of conviction in the move.
- Some traders go long on the break out of the handle while others may wait for prices to advance past the resistance marked by the top of the cup shape.
- To estimate a target traders usually take the range from the bottom of the cup to the top of the cup and add this onto the top of the cup.
Examine the chart of the EUR/USD below.
- The top of the cup is formed on 30th April and 6th August 2010 around the 1.3340 level.
- The low of the cup formed on 7th June at 1.1877.
- The range of the decline was 1463 pips (1.3340-1.1877).
- The market went into a consolidation period, (the handle) from 6th August until early February.
- By 22nd September the market had advanced and broken slightly above the previous resistance at the 1.3340 level.
- Traders going long in the market may estimate a target for the EUR/USD at
- 1.4802 (1.3340 +1463 pips).
- Traders entering earlier in the move when the market broke out of the handle phase would have a lower target.
Forex genuine Online Trading - Cup and Handle.View chart in interactive mode at ProRealTime.com.
Cup and Handle patterns can manifest in Stocks, Exchange Traded Funds, Forex, Commodities, Bonds, Futures, etc. Traders should always implement appropriate risk management and stop loss strategies.
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