Inverted cup and handle patterns are the inverse of their counterpart the cup and handle. They are a bearish pattern. Picture the cup and handle upside down. The rounded bottom is up top and as price falls down to the base of the cup, it then gets a pop and retracement, which forms the handle. Watch for base of the cup to fail for confirmation.
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What Are Inverted Cup and Handle Patterns?
An inverted cup and handle pattern consists of several candlesticks that form an upside down u formation. At the base of the u formation, a new rising wedge or rising channel forms, thus creating the handle formation. T
These patterns are bearish continuation patterns. The inverted c&h pattern gets its name because of the shape it forms on stock charts. The inverted cup and handle pattern forms an upside down cup and handle. Inverted c&h patterns are bearish continuation patterns. It gets its name because of the shape it forms on stock charts. The inverted cup and handle pattern forms an upside down cup and handle.
They give warnings ahead of time. Especially, if a stock pattern is going to break down.
Basics
Inverted head and shoulders patterns are common patterns found on charts. There can be a smaller inverse cup and handle inside a large cup and handle. It has an upside down U with a handle.
The handle can trade at an angle or trade straight across. Because the inverted cup and handle is a bearish pattern, the stock would break down out of the handle. Cup and handle patterns break down all the time. The handles do fail so make sure you know what the candlesticks forming the handle are telling you. The cup on inverted cup and handle patterns form an upside down U.
The less V shaped the cup the better. You want it to look like a bowl or have a rounding bottom. There are times you’ll see peaks so it’s important to remember to look at the overall picture. Those may be double tops forming which is also a bearish pattern. If it can’t break the resistance level, it fails.
The cup bottom forms a pretty important resistance level because it’s on top. If it’s a perfect cup, the lows would be even. Although, we know that perfect charts don’t happen a lot.
The Handle and What It Means
The handle on inverted cup and handle patterns form on the right side just like it’s counterpart pattern the cup and handle. The handle could also be forming secondary patterns such as a flag or wedge.
The cup hits the support level and has a minor correction that forms the handle. Once the handle completes and the pattern doesn’t break down, the stock will fall down further.
The handle forms both support and resistance so look at the candlesticks forming the handle. What clues are they giving you?
Wait for confirmation of a direction after the handle breaks. Sometimes the stock will move back to test the new resistance level the handle forms to see if it’ll hold.
How to Trade Inverted Cup and Handle Patterns
- Watch for consolidation to form upside-down cup pattern
- Watch for price to hold the bottom of the upside down cup and form handle formation
- Next, look for price to break down out of handle area
- Then, watch if price can break support at the base of upside down cup and hold
- Traders take a short position once the base of the cup breaks and holds. Place stop at top of handle
- Some traders take a long position once price breaks down out of the handle placing a stop at top of the handle
How Long Does It Take to Form?
Inverted cup and handle patterns can take a few months to form. They’re great to spot on daily chart time frames because the chart pattern can take a month up to 6 months to form. The handle itself takes one week up to 4 weeks to form.
So, this pattern can take awhile to form. That’s why it’s important to see other patterns forming inside the inverted cup and handle. This way you can still trade it as it’s forming.
Volume always plays a role in the completion of a pattern and the confirmation of the breakout. Make sure the resistance levels hold and the pattern doesn’t break down.
