The Cup & Handle: 75% Accuracy, 60% Return

The cup and handle is a technical analysis pattern that has been used by traders for decades to identify potential trading opportunities. It is a bullish pattern that indicates that a stock is likely to continue to rise in value.

The cup and handle pattern is formed when a stock price declines to form a rounded bottom, then rallies to form a handle that is typically shaped like a handle on a coffee cup. The stock price then breaks out of the handle and continues to rise.

The cup and handle pattern is considered to be a reliable trading pattern, and it has been shown to have a 75% accuracy rate. This means that 75% of the time, a stock that forms a cup and handle pattern will continue to rise in value.

The average return on a cup and handle pattern is 60%. This means that if you buy a stock that forms a cup and handle pattern, you can expect to make a 60% profit on your investment.

How to Identify a Cup & Handle Pattern

The cup and handle pattern is relatively easy to identify. Here are the steps involved:

1. Look for a stock that has declined to form a rounded bottom.
2. The stock price should then rally to form a handle that is typically shaped like a handle on a coffee cup.
3. The stock price should then break out of the handle and continue to rise.

Trading the Cup & Handle Pattern

Once you have identified a cup and handle pattern, you can trade it using the following steps:

1. Buy the stock when it breaks out of the handle.
2. Set a stop-loss order below the bottom of the cup.
3. Take profits when the stock price reaches your target price.

The target price is typically set at the height of the cup plus 60%. For example, if the cup is 10 points high, then the target price would be 16 points.

Pros & Cons of the Cup & Handle Pattern

The cup and handle pattern is a reliable trading pattern, but it is not without its risks. Here are some of the pros and cons of the cup and handle pattern:

Pros:

• High accuracy rate
• Average return of 60%
• Relatively easy to identify

Cons:

• Can be time-consuming to trade
• Can be difficult to find the perfect entry and exit points
• Not all cup and handle patterns will be successful

How to Use the Cup & Handle Pattern to Generate New Trading Ideas

The cup and handle pattern can be used to generate new trading ideas by looking for stocks that are forming the pattern. Once you have found a stock that is forming a cup and handle pattern, you can research the stock to see if it is a good investment.

Here are some of the factors you should consider when researching a stock that is forming a cup and handle pattern:

• The company's financial health
• The company's competitive landscape
• The stock's technical indicators

If the stock is a good investment, then you can add it to your watchlist and wait for it to break out of the handle. Once the stock breaks out of the handle, you can buy it and hold it until it reaches your target price.

Useful Tables

The following tables provide some additional information about the cup and handle pattern: