NeeteshJain
Education

Educational 15: Cup & Handle (Continuation Pattern)

NSE:CNXIT   NIFTY IT
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The Cup & Handle pattern is one the most common and favorite patterns among the traders. It is another time-tested pattern that has created valuable gains for traders and investors. It is known as a bullish continuation pattern and resembles the shape of a tea cup on a chart.

Plot: First, it's important that there is an upward trend before the formation of the cup and handle . In general, the larger the prior trend is, the lower the potential for a large breakout after the pattern has been completed.

Reason of the Shape: The reason is that a cup-and-handle pattern is a signal of consolidation within a trend, where the weaker investors leave the market and new buyers and prior holders stay in the market. If the shape of the cup is too sharp or V-Shape (or quick), it is not considered a true consolidation phase in the upward trend and thus weakens the potential trade signal.

Cup: A cup formation happens when the price moving in an uptrend shows a pullback followed by a consolidation period which makes the bottom of the cup and finally the reverse back to upside continuing the uptrend. Bottom of a cup serves as support for the pattern as shown in above chart. Usually the pattern looks like a 'U' to round bottom. The cup should be considered reliable only when it is less than half percentage of the preceding trend. The deeper the 'U' or round shape the reliable the pattern is.

Handle: The handle is the downward move after the upward move on the right side of the cup. During this downward move, a descending trendline can be drawn, which forms the signal for the breakout. A move above this descending trendline is a signal that the prior upward trend is set to begin.

Major Breakouts: 1. Descending/Downward Trend line or Resistance of the Handle
2. The price point of the two peaks in the cup


Thank you for your continuous support and appreciation,

Regards,
Neetesh Jain

Hi, i am a new joinee on this website. I appreciate your efforts to share this information. I just noticed that if i take hourly chart on nifty and start plotting this pattern from 06/24/2016 till today, it appears that nifty formed this cup and handle pattern and today's closing broke the rising channel which could possibly be the breakout candle. I am not sure how to post pics on comments. If you can check and let me know if my understanding is correct? Thanks
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dravya dagarohan
@dagarohan, you can just copy paste the link of the published chart and it will be visible as image in the comments.
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Hi Neetesh,
Very informative.
Keep posting
Regards,
+1 Reply
NeeteshJain Dayanandan
@Dayanandan, Thank you, I wish it adds value to your trading experience. Regards
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Thanks Neetesh Ji.
+1 Reply
Example: #Pricol on Monthly Chart



In case you find one while looking at charts then do share it below for others to understand. Regards
Reply
thank u for the education.
+1 Reply
Nice one Neetesh.
+1 Reply
thanks
+1 Reply
Thank you for alike post
+1 Reply
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