Introduction to the Cup and Handle Pattern on TradingView

The cup and Handle pattern is one of the most well-known and reliable chart patterns used by technical analysts and traders on TradingView. This bullish continuation pattern forms as the price pulls back after a strong advance, creating the ‘cup’, consolidates in a tight range, forming the ‘handle’, and then breaks out upwards to new highs.

In this comprehensive guide, we will cover everything you need to know about trading the cup and handle pattern on TradingView, including:

• What is the cup and handle pattern?
• How to identify the cup and handle on TradingView charts
• The psychology behind cup and handle formations
• Key characteristics to look for in a cup and handle
• Trading strategies and setting up alerts
• Tips for trading cup and handle breakouts
• Common mistakes to avoid
• Real chart examples and analysis

Whether you are a beginner learning about chart patterns or an experienced trader looking to refine your skills, this guide will provide valuable insights into trading the cup and handle setup on TradingView.

What is the Cup and Handle Pattern TradingView?

The cup and handle pattern gets its name from the distinct shape it forms on the chart – a rounding bottom that resembles a cup, followed by a consolidation period that forms the ‘handle’.

It is categorized as a continuation pattern, meaning it signals the resumption of the prevailing uptrend after a period of consolidation. The cup and handle is considered a bullish pattern and a sign that the uptrend is likely to continue.

Some key characteristics of cup and handle patterns:

• Forms after an advance of 20-30% or more
• The ‘cup’ is a rounded bottoming pattern, like a ‘U’ shape
• Handle forms as a short consolidation period, a tight trading range
• Handle should not decline more than 50% of the cup’s advance
• Breakout occurs when price moves above the high of the handle consolidation
• Measured move target is equal to the depth of the cup added to the breakout level

The cup and handle was popularized by William O’Neil in his investing classic ‘How to Make Money in Stocks’. O’Neil found the pattern to be one of the most reliable for identifying low-risk entry points in strong uptrends.

How to Identify the Cup and Handle on TradingView Charts

Now let’s walk through the key steps for identifying cup and handle patterns on your TradingView charts:

1. Find the Prior Uptrend

Ideally, you want to see the cup and handle form after an advance of at least 20-30%. This helps confirm that it is a continuation pattern forming within a strong uptrend.

You can scan for potential cup and handle patterns by looking for stocks trending near 52-week highs or all-time highs on the longer time frames (daily, weekly charts).

2. Look for the Signature U Shape Cup

The most important part of the pattern is the cup formation – this is what gives the pattern its name! The cup should be a rounded bottom, like a ‘U’, and at least 6-8 weeks in duration on the weekly chart.

Avoid V-shaped bottoms, as this increases the risk that the pattern is a reversal rather than continuation. The cup needs to be rounded and show some consolidation.

3. Identify the Handle

After forming the cup, there will be a short consolidation period as the handle forms. This handle should be 1-4 weeks long and not decline more than half the advance of the cup formation.

The handle is a key sign of accumulation, as trading volumes dry up and the price coils tightly. Avoid handles that are too long or have a large decline.

4. Draw the Trendlines

Drawing uptrend lines connecting the low points of the cup and handle can help identify breaks when the price closes above the upper trendline. This is your buy signal!

You can also draw parallel trendlines along the handle to anticipate the imminent breakout.

5. Measure the Potential Target

The theoretical target from the breakout is the depth of the cup added to the top of the handle. So if the cup depth is $2 and the handle high is $10, the minimum target is $12.

In practice, cup and handles often exceed the measured move, so view it as a guide rather than an exact target.

The Psychology Behind the Cup and Handle

Understanding the psychology and behavior behind chart patterns can help you better identify high-probability setups. Here is what is happening in each stage of the cup and handle formation:

The Cup

• Prior uptrend exhausts itself as buyers hesitate after the advance
• Longer-term holders take profits after the run-up
• This pause in momentum allows the price to pullback and consolidate in an orderly manner
• Formed by balanced supply and demand rather than emotional selling

The Handle

• Narrow trading range shows indecision among market participants
• Bulls and bears battle it out within a confined price range
• Decreasing volume and volatility signal accumulation
• Smart money positions for the next leg higher

The Breakout

• Consolidation resolves itself in an upside break as demand overwhelms supply
• Break above resistance signals a resumption of the uptrend
• Increased volume confirms the validity of the breakout
• Late buyers rush in fueling further gains

Key Characteristics to Look for in a Cup and Handle Pattern TradingView

While no chart pattern is perfect, here are some tips for identifying higher probability cup and handle setups:

• Healthy prior uptrend – Look for a strong advance (20%+) leading into the pattern
• Round bottom cup – Avoid V-shaped cups, seek rounded/saucer-shaped
• Volume – Volume should diminish during cup formation, not climax
• Deep cup – Look for a retracement of at least 30-50% of the advance
• Symmetrical cup – Left and right side of cup should be similar
• Short handle – Look for a handle less than 25% depth of cup
• Declining handle – Avoid handles that rise above the cup’s high
• Consolidating handle – Low volatility and volume confirm consolidation
• Volume spike on breakout – Look for breakout on expanding volume

Paying attention to these characteristics will help you avoid poor quality setups and identify cups that are likely to break out successfully.

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Trading Strategies for Cup and Handles

The most common strategy is to buy the breakout above the handle’s resistance once price closes above the upper trendline. This confirms the uptrend is resuming with a clear break of the consolidation period.

However, there are also some other effective tactics to consider:

• Look for increased volume on the breakout for confirmation. Volume should spike as the price breaks out.
• Use limit orders just above the trendline to enter on the breakout. This ensures you get filled at the breakout point.
• Place initial stop losses below the low of the handle. Trail stops up to lock in profits.
• Target taking partial profits at the measured move, which is projected by adding the depth of cup to the handle high.
• Buying the pullback to the 20-day moving average after the breakout can offer another entry point with a logical stop.
• Consider using options for lower risk. Long calls allow upside exposure with limited capital at risk.

Tips for Trading Cup and Handle Breakouts

When trading the cup and handle breakout, keep these tips in mind:

• Use the 50-day and 200-day moving averages to confirm the broader uptrend. Avoid trading cup and handles in downtrends.
• Watch for volume to increase during the breakout, validating the move. Lack of volume raises warning signs.
• Use the measured move target as a guide, but expect breakouts to exceed projections when trends are strong.
• Set stop losses below support levels like the 50-day MA or bottom of the cup. Trail stops higher to lock in gains.
• Look for previous resistance levels where rallies stalled to take partial profits. Protect capital into overhead supply.
• Stick to high probability setups and avoid cups without clear definition or clean breaks with solid volume.

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Cup and Handle Pattern TradingView Common Mistakes to Avoid

Here are some key mistakes traders should steer clear of when trading cup and handle patterns:

• Trading cups without a proper preceding uptrend or clear technical criteria.
• Not waiting for a confirmed breakout above the upper trendline before buying.
• Getting into trades too early without letting the pattern fully form and develop.
• Not using stops or having improperly placed stops that are too tight.
• Holding through excessive drawdowns after the breakout rather than cutting losses short.
• Failing to book partial profits into strength around targets, giving back gains.
• Chasing breakouts and buying at poor risk/reward areas above the trendline.

Cup and Handle Pattern TradingView Conclusion

The cup and handle pattern can offer lucrative trading opportunities but requires skill and discipline to trade properly. Use the strategies and tips outlined here to identify high-probability setups, smartly enter trades, maximize profits, and avoid common errors when trading cup and handle patterns on TradingView.

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