Technical Analysis 101: The Cup and Handle Pattern
Admittedly, some technical patterns have bizarre names.
Spot them in time though, and you stand to do explosively well. One of those is the cup and handle – one of the oldest chart patterns you’ll find. It’s also one of the more reliable of technical indicators, too.
It simply looks like a cup with a handle. Gold, for instance, recently formed what appears to be a handle to the cup in June 2017. As you’ll notice, gold has put in a minor pullback after approaching double top resistance at $1,300. Once that pullback is complete, potentially forming the handle to a cup, gold prices could be off to the races.
At least, that’s the hope.
As with any indicator, confirmation of trend is always essential.
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With this pattern, there are three defining characteristics. A downward slope marks the left side of the cup. The bottom of the cup is often marked with a narrower trading range, or a tug of war between the bulls and bears. An upward arch marks the right side of the cup, as the bulls retake control.
The handle then forms off the right side of the cup. This will typically be a small pullback from the cup formed prior to a march higher. It’ll often take the form of a pennant.
In April 2017, for example, gold sold off from a high of $1,300 to $1,215. It then consolidated for a few days, only to rocket higher to retest $1,300. That told us bulls were back in control. Then, after testing resistance, gold pulls back to $1,268. Once that pattern is complete with the handle, we could begin to make a technical argument for upside.
We saw a similar set up between November 2016 and February 2017, as well.
It doesn’t matter how bizarre an indicator’s name may be. If it works, use it.
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