In this article I will teach you how to identify and trade the cup with handle pattern like a professional.
There are many articles being written on the cup with handle and by this time you would have already been familiar with the pattern by now. It is very simple... It looks like a cup with handle from a sideways point of view.
Let's take a look at the chart of Microsoft's stock above. The stock formed a cup with handle pattern and the moment to buy the stock was when it gap up above the handle.
A stop loss can be put below the handle for the more aggressive trader. For a more conservative trader, a stop loss can be put below the entire pattern.
Now here is the difference between a normal cup with handle pattern and what a professional would want to look at:
The cup with handle pattern should be above a rising 200 MA
The stock should have broken a downtrend line when the setup appear
There should be a bullish 20 MA cross above 50 MA near the handle
A rising 200 MA points to long term strength. If the stock breaks a downtrend line, this tells us there is already a trend change. When there is a bullish 20 MA cross above 50 MA this tells us a new short term uptrend has begun.
As you can see, the stock has more than met its target. The initial target is where you take the height of the pattern and project it upwards from the breakout.
I hope this article has helped you in understanding and trading the cup with handle pattern like a professional. Follow me for more articles like this.