Chart patterns take place when the price of the market follows a sharp or sideways movement. In the stock market, there are three common types of chart pattern – i) an upward market or a bullish market: when the price’s value moves upward, ii) a downward market or a bearish market: when the price’s value moves downward, and ii) sideways market or ranging market: when the price neither shows an uptrend or downtrend, and the price moves at a steady rate. In addition to this, you may also notice some shapes like rectangular, triangular, or head and shoulders patterns.
Based on the types of patterns, a trader may decide to enter a trade or not. Each of the chart types provides a logical entry or exit point, and an investor can identify it easily. Trading will be much easier for him. Stock traders in Hong Kong can easily set their stop-loss and take-profit orders to reduce their financial losses. In this article, we will concentrate on the cup and handle the type of chart pattern and the way to trade with it successfully.
The cup and handle chart pattern
An investor may find this pattern in all types of markets and timeframes. Either in a shorter timeframe or in a longer timeframe, you can see this pattern, or it will take place when there is a wave of ups and downs in the market. Being a chart pattern trader, try to trade with Saxo as they will provide perfect price feed in the trading paltfrom. A precise price feed can help you boost your performance significantly.
Let us elaborate on how the cup and the handle are formed in this pattern. To create the cup section, there must be a huge downward and then upward wave in the chart. This downward + upward wave will look like a cup if you add an average line, especially the “U” shape. To form the handle, the market has to move sideways. If you add the lines, it will create a triangular pattern. This handle will always be smaller than the wave of the cup, and experts state that the bottom value of this handle section should be smaller than the half of the cup. Professionals think that if the handle and cup are equal, it is wise not to enter a trade at that point, and that investors should avoid that type of chart pattern.
How can you enter the trade by observing the cup and handle?
If people notice that the chart has already formed a cup, they should wait for the handle section. The handle will include either a rectangle because of a sideways movement or a descending movement or a triangle. Expert investors suggest buying currencies when the chart ends, drawing the handle (also called the top of the triangle). After this cup and handle formation, the price is anticipated to rise. However, there is no guarantee that the price will move upward, which is why it is wise to set the stop-loss order to reduce risks.
How to pick a potential exit
To pick a profitable exit point in the cup and handle pattern, anETF trader should be careful. He should measure the height of the cup and use it to draw another curve from the breakout point of the handle. The newly drawn line will help him to determine the possible exit point to get the maximum profit.
A cup indicates that there is a pause in the market—the bottom of the cup either creates sideways movement or a nicely rounded base. You can also get a “V” shape in some cases, which is also regarded as a cup. Professionals always set the stop-loss order to minimize their possible losses, and they enter the trade whenever there is a breakout at the handle section. You can use the demo account to practice trading using the cup and handle chart pattern.