by In this article, I will discuss how to trade cup and handle patterns in 2021 it can be used for intraday trading and it could also be used for swing trading with a daily candlestick chart which is what I’m going to mostly focus on in this post.
Please be aware that like all other patterns this one does not give a hundred percent result.
Let’s take a look at the cup and handle winning stocks often start their big runs by forming this pattern so this is obviously a bullish pattern if it works out, it resembles a teacup viewed from the side cup and handle as shown in the chart.
You have to be able to use your imagination for this one now the stock should run up at least 30% that’s the prior uptrend before forming the base then it should start selling off 15 to 30% from the high when it reaches the floor and bottoms out institutional investors have stopped selling their shares and have started buying again.
I will let you know that a lot of retail traders tend to buy and sell at the wrong time whereas the institutional traders tend to get in closer to the bottom so I’m looking for institutional or large-scale orders and when the selling pressure ends then the large-scale institutional buyers come in more likely at the right time than the retail traders.
That’s a sign that the selling pressure had stopped the buying pressure is starting to come in and that’s when the handle starts to form the handle forms in the upper half of the base. It’s closer to the top than the bottom as shown in the chart and for swing traders, it should be at least five trading days long again that’s you know five candlesticks on the daily candlestick chart for intraday trading you’re gonna have to adjust all this to your timeframe.
Now during the handleless committed retail investors are being shaken out of the stock all right so again the retail traders investors tend to not do as well as the big institutional investors and so they get head faked here it goes down they might sell here.
After the shakeout the stock is now free to run if this works out again doesn’t work 100% of the time alright and don’t look for an exact rounding bottom pattern here it’s usually pretty sloppy.
It generally adheres to this curvature here all right and so this is a bullish pattern a continuation pattern. if you want to get in this trade, probably after the shakeout you can make your position. I will convey to you how you can do entry and exit in this pattern and what should be the target for this you need to read the whole article without skipping any line of this article.
The ideal buy point is just above the higher candle of the handle but you can buy anywhere within buying range. You don’t wait too long you don’t want to buy way up here. the ideal situation is to buy above the handle as shown in the chart.
Examples of Cup and Handle Chart Pattern
let’s take a look at a couple of examples this is a bank nifty index chart, you can see the formation clearly. It’s a proper Cup and Handles Pattern. Most of the time you know that all these patterns tend to be a little sloppy in nature but this one is pretty close and we have the cup and the handle in the above chart.
Once it breaks above and sustains above the resistance then we can see a good upside movement in this Index.
How to analyze the stock or index?
Stock or Index selection on weekend, first of all, we need to find those stocks that have created a cup and handle pattern and nearest to handle, which means candle closing above the handle, and then we need to just focus on those stocks through the whole week.
How to take entry in Cup and Handle Pattern?
As the price crosses and closes above the cup and handle pattern our 50-day moving average, if it forms a bullish candle, we need to place our buy positions order above the bullish candle.
What should be the stop loss in Cup and Handle Pattern?
Stoploss should be below the range of a handle in this trade. stop-loss should be strict in this trade if it hits the stop loss then just leave the trade and again you can do re-entry if it comes to your buying zone.
What should be the Target in Cup and Handle Pattern?
Target should be the minimum 1:2 risk-reward ratio which will be helpful for you to become a profitable trader in the upcoming days because no strategy works `100 % in the stock market. So risk-reward ratio will help you grow your trading account in the future.
Conclusion
Cup and Handle Pattern for day trading is usually the best trading strategy to take the trade. This setup is very easy and simple to use just you need to keep patience and let your setup form and then you can enter your positions. Stoploss should be the low or high of the range inside the bar candle for uptrend and downtrend and the target would be as per your risk-reward ratio. One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
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