Cup and Handle Chart Pattern

The cup and handle chart pattern is a bullish continuation pattern. To put it simply, when you see the cup and handle, it is usually indicative of a future bull movement toward the top of a chart. The cup and handle chart pattern can appear on any chart setting, and is just as useful on long-term charts as it is on short-term charts.

Spotting a Cup and Handle

A cup and handle chart pattern is formed by a long trough in the currency price before a minute consolidation period. You can see this clearly in the chart below:

There are a few key characteristics of a cup and handle pattern:

1. Roundness – The more round the “cup” is in the currency chart, the better the possibility for a larger move.
2. Flag formation – As you can see in the example, the handle need not be as rounded as the cup, as it is made up of less bars, candlesticks, or points compared to the cup. In the example above, you should recognize the bullish flag formation that appeared in the handle.
3. Proportions – A cup and hand should be sized equal to 33-66% (one to two-thirds) of the previous bullish move. If the cup is too large or too small, then it is not a consolidation period, and the pattern is not a cup and handle.
4. Handle trend lines – You should look to draw trend lines in the handle, if possible. These trend lines will provide for momentum after a breakout, and help to guide you into a price at which you can buy the currency pair.
5. Entry – Any entry on a cup and handle trade should be done after the pair breaks through the top of the cup and handle. Entering too early may provide for greater pip returns, but the chart pattern is not confirmed until the price moves past the cup and handle peak.

Having explored the cup and handle pattern, you’re now ready for an article on gaps, which are a very small chart pattern, but one which can be very helpful in identifying support and resistance, breakouts, and momentum in a currency pair.