EURUSD 1.1787 USDJPY 112.14 USDCAD 1.2774 EURCZK 25.557 USDCZK 21.677 EURPLN 4.2304 USDPLN 3.5887
EURUSD 1.1787 USDJPY 112.14 USDCAD 1.2774 EURCZK 25.557 USDCZK 21.677 EURPLN 4.2304 USDPLN 3.5887

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Cup and handle are formations that may provide information on a sharp continuation of price movement

Rule of thumb

An inverted cup and handle formations occurring in downward trends are not so common

Chart type: Bar chart, Candlestick

Applies to: Continuation

Significance: Medium

 

Cup and handles are formations that confirm the continuation of a trend, typically occurring in upward trends.

 

cup, handle

 

The first part of  a formation is the “U” shaped cup, which is typically formed in two phases – the first one is a fall back after an upward trend - at this time a local maximum point is established. The second is a rise of price to the previous local maximum level. These market movements should take a rather smooth “U” liked shape. The more a “V” shaped is visible, the less this formation is similar to its ideal pattern.

 

The second part of this formation is the handle. The handle consists of a clearly smaller “U” shaped price movement. The key moment is when the height of the handle is at the same height of the cup. By drawing a line (which should be rather horizontal) in the top part of the cup and handle, it becomes a resistance line. Should the price break  a resistance line, a sharp increase of price can be expected. The target price, after breakout of this formation, is dependent on the “depth” of the cup, i.e. the distance between the bottom of the cup and  a line linking the walls of the cup. This depth may then be added to the break out price level, and  a target price is established.

 

How to use it with MetaTrader 5:

  • After a local maximum in the chart, look for a smooth “U” shaped price movement.
  • If the next, local maximum is relatively at the same height of the previous one, using the [ diagonal line] button, draw a line connecting the “walls” of the cup. This may be treated as the resistance line.
  • Check if another significantly smaller “U” shaped movement occurs.
  • If the handle is shaping properly, then the moment when the price breaks the resistance line, a sharp price movement should be expected.

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