cup & handle ( Long )A cup and handle pattern is a technical chart pattern that traders and investors often use to analyze the price movement of a security, such as a stock or a cryptocurrency. It is considered a bullish continuation pattern, which means that it typically occurs in the middle of an existing uptrend and suggests that the uptrend is likely to continue.
Here's a breakdown of the cup and handle pattern and what happens when you see it on a chart:
1. Cup Formation:
- The pattern starts with a "cup" shape on the chart. This cup resembles a rounded bottom, which is formed after a prolonged downtrend or consolidation period.
- During this phase, the price of the security gradually decreases and then starts to reverse its course.
- The left side of the cup represents the initial decline, followed by the rounding bottom as buying interest picks up.
2. Handle Formation:
- After the cup is formed, there is a short consolidation period, which is called the "handle."
- The handle is characterized by a relatively shallow and sideways or slightly downward-sloping price movement.
- It can also be seen as a brief period of profit-taking or hesitation among traders.
- The handle often has a smaller range compared to the cup.
3. Breakout:
- The key event in the cup and handle pattern is the breakout.
- Once the handle is formed, a breakout occurs when the price of the security moves above the resistance level at the top of the cup.
- This breakout is a strong signal that the price is likely to continue its previous uptrend.
4. Volume:
- Volume is an important factor to consider when identifying a cup and handle pattern. Typically, there is a decrease in volume during the formation of the handle, followed by an increase in volume during the breakout.
5. Price Target:
- Traders often use the depth of the cup (the distance from the lowest point in the cup to the top of the cup) to estimate a price target for the security. The price target is generally set at a level above the breakout point.
It's important to note that not all cup and handle patterns lead to successful breakouts. Some may fail, and the price could reverse. Therefore, it's crucial to use other technical indicators and analysis in conjunction with the pattern to make informed trading decisions. Additionally, it's always a good practice to wait for confirmation of the breakout before entering a trade, such as waiting for a strong close above the resistance level with increased volume.
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