When you start to enter the world of trading, you will come across various patterns in reading charts. Understanding various patterns in trading activity will really help you in knowing price movements. One of the patterns that you must learn is the Cup and Handle pattern.
But before we discuss more about cup and handle patterns, it's good to identify first, let's go, what patterns are commonly used in reading crypto asset charts!
Various Patterns in Reading Crypto Asset Charts
In addition to the cup and handle patterns, there are 4 kinds of patterns commonly used in reading crypto asset charts. Well, here are the patterns:
Double Top and Double Bottom
Double tops and double bottoms are some of the most common price reversal patterns found in market price movements. The form "M" or "W" can be found in the minute period to the weekly period.
These patterns generally appear frequently and prove that market price movements are not truly random.Pennant
This is a connection chart pattern, seen when a security experiences a large up or down movement followed by a brief consolidation. The pattern looks like a small symmetrical triangle called a Pennant and consists of many candlesticks. Usually this pattern shows short term consolidation.Flag Pattern
Having a flag-like shape is a candlestick formation pattern that is often formed and easily recognizable. It usually appears when trending conditions are strong and indicates a continuation of the trend. Often described as a break from major market movements, it has a high probability with sufficient risk.Head and Shoulder
This pattern is a chart formation which has three peaks, two on the outside having a high that is close to implying like a shoulder and the middle is high as if it were like a head. This pattern occurs in an uptrend which indicates a possible reversal of the trend.
What is the Pattern "Cup and Handle"
The more you know the patterns in trading, the more it makes it easier to determine which chart patterns appear to get profit. Cup and Handle is a pattern that is often used in analyzing crypto asset market conditions.
Cup and Handle, this pattern was first identified by William J. O'Neil in his book How to Make Money In Stock: A Winning System In Good Times And Bad in 1998. Cup and Handle are patterns that fall into the category of a continuous uptrend pattern. It is called the Cup and Handle because the shape of the price movement resembles a "u" shaped cup and the handle moves slightly downward.
Generally this pattern is used as an entry motive for the continuation of an already formed bullish trend.
In simple terms, the Cup and Handle Pattern is a pattern that is formed when the stock price moves down slowly, then the stock price slowly rises again. The shape of the cup handle is a trading range or area of consolidation that develops after the cup shape is finished, signaling an opportunity to buy.
How to Read the Pattern "Cup and Handle"
It is necessary to pay attention to the following points to find out the cup and handle pattern. The cup must be round in the shape of a "u", then the most important thing to pay attention to is that the cup must form a resistance line. The resistance line is the tip of cup 1 with the end of cup 2 usually having the same stock price.
After the cup is formed, the price undergoes a maximum reverse movement of up to half a cup, forming a handle. Handle is a short consolidation period.
Buying stocks should be done when the handle is formed, then the stock price rises again and breaks the resistance line, meaning that the cup and handle are valid. Therein lies the point of buying shares.
The target selling point can be estimated by using a technique of measuring the distance from the top of the cup to the bottom of the cup, then extending it in the direction of the breakout. The typical stop level is located outside the handle opposite the direction of its redemption.