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The cup and handle is a chart pattern that is formed by a “cup” shaped pattern and a subsequent “handle” that looks like a small flag or triangle. This pattern is created when the price of an asset experiences a significant price move, followed by a period of consolidation. The cup and handle is a bullish pattern, which means that it is typically seen as a bullish sign and indicates that the asset’s price is likely to continue rising.
To form a cup and handle, the asset’s price will typically make a “cup” shaped pattern, with the left side of the cup representing a significant price move and the right side representing a period of consolidation. The handle is then formed as the price continues to consolidate, typically forming a small flag or triangle shape. The pattern is typically completed when the price breaks through the resistance level, at which point it is likely to continue rising as traders enter into long positions.
One of the key characteristics of the cup and handle pattern is that the trading volume tends to decrease as the pattern progresses. This is because the price is consolidating within a small range and there is less activity from traders. However, once the price does break through the resistance level, trading volume tends to increase as traders enter into long positions and push the price higher.
It is important to note that the cup and handle pattern is a bullish pattern, but it is not a guarantee that the asset’s price will rise. As with any trading strategy, it is important to use risk management techniques and to always be aware of the potential for losses.
