Please note I have seen others use this on 5 min candles successfully can be used on 5 min chart candles
A cup and handle pattern is formed with a UPWARD trend with down trend pauses. This is a bullish continuation pattern.
What makes a cup and handle?
> Stock starts with an upward trend
> Investors will sell for higher gains as the stock reaches price peaks.
> Selling off these stocks will bring a down trend which can last for 4 days to 4 weeks
> The stock will then move to a down trend of about 1/3rd will form a flat U shape pattern
> A downward trend with a V shape indicates a fast recovery from its low price point
> Stock will eventually continue to an upward trend to match the previous price peaks
> Stock will trend slightly lower after the price peak creating a handle ( this usually lasts for less than one month) ( handle can have both an upward line about 1/3rd of the cup’s gain or a straight line)
> An upward trend will be assumed to resume
What does a cup and handle look like?
> It looks like a cup and handle
> Here is a cup and handle example I created on excel
> There is an upward trend (A)
> There is a downward trend (B) followed by a U shape bottom
> This down trend is followed by (C) a bullish up trend
> Point (D) forms the top of the handle and the resistance
> A break out after the handle resistance is then assumed
How can we use the cup and handle for trading?
> Look for cup bottoms with a longer and more U shape bottom
> V shape bottoms should be avoided
> Avoid deep bases
> Avoid handles which decline below the top half of the cup (add the highest point + lowest and divide by 2 -the handle should remain above this point)
> Assume the further the top of the handle is from the high point the more of a large break out is needed.
> Assume a bearish trend on the decline with low volume
> Avoid stocks with break outs less than 10 week moving average
> Volume should rise to more than 40% above the 50 day average
> For small/mid-cap stocks expect break out volume to double or triple
Psychology
> This pattern can take from 7 weeks to 65 weeks to form
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