How to Trade Cup & Handle Patterns in Forex Trading

Introduced by the analyst William O’Neill, the cup and handle pattern is among the favorite chart patterns for the Forex traders. It is understood to be relatively straightforward in determining a potential rise in the trend for a particular Forex trade (also stock). It is recommended to be employed within a strategy for pursuing Forex trading. The pattern indicates a continuation of a bullish trend after its termination and is formed as a consequence of the consolidation of that bullish movement.

Trading Cups and Handle Patterns Components

1) The Cup & Handle Structure:

The pattern is comprised mainly of two parts - the cup and the handle. The cup is typically defined by a pullback of a particular Forex trend followed by a subsequent rise with a round candlestick bottom which essentially forms the shape. The handle, on the other hand, is observed as a downward-sloping price action which breaks out beyond the upper resistance line, indicating the continuation of the original bullish trend. A typical structure will have the breakout going above the trendline which is drawn from the left to right side of the cup. This structure is one of the most sought after by investors in Forex trading in Thailand.

2) Timeframes:

Generally, these patterns are observed on a daily chart after strong trends have progressed for a month or more. As they mature, the chance for such patterns to occur diminishes. Even if they do occur, the likelihood for a strong continuation is minimal. The case is similar when you observe such patterns within shorter time frames.

3) Pattern Formation:

The pattern is more reliable when the cup is more “U-shaped” than V-shaped. This demonstrates a robust support at the base of the cup. The depth is supposed to retrace less than ⅓ of the advance, before the pullback. However, in volatile markets and, the depths may retrace between ⅓ and ½. It usually takes one to 6 months for this pattern to develop. Ideally, the price levels of the left side and the right side of the cup are the same or similar and correspond to a single resistance level.

As for the handle, it could be a small unorganized pullback which normally retraces less than ⅓ to ½ of the depth of the cup. It is important to note that shallower retracements lead to more bullish movements in the Forex trends. Ideally, the handle develops over one week to a month.

4) Pattern Analysis:
As soon as you notice a breakout above the handle’s upper trendline (level of the right side of the cup), you could take action and pursue a trade. Automatic trades can be initiated via buy-on-stop orders. You could set an entry value for your price target based on the sum of the price at the breakout point and the difference between the bottom of the cup and the upward trendline. Being able to effectively analyze this pattern is a great bonus as it will serve as a useful forex trading strategy.
 
Denoting a pretty straightforward representation of continuing trends in, the cup and handle patterns are often coupled with other analytical tools to make informed decisions in Forex exchanges! WesternFX is known to deliver absolutely sterling services for Forex trading in Thailand. Connect with our accomplished professionals to pursue safer and more profitable Forex trading strategies! We’re only one call away!