Cup and Handle Pattern Chartlink: Everything an Indian Trader Needs to Know

Cup and Handle Pattern Chartlink: Everything an Indian Trader Needs to Know

If you are learning the basics of technical analysis or already trading on the stock market, you would have come across different types of chart patterns. The Cup and Handle pattern is one of the most helpful and popular bullish patterns used by traders. It assists traders in figuring out potential breakouts in stock prices.

In this article, we will define the Cup and Handle pattern in simple terms and show you how to use the Cup and Handle Pattern Chartlink scanners to detect the pattern as it occurs in real-time. This article is ideal for traders who are familiar with charts but want to fine-tune their trade timings with regard to entries and exits.

What is Cup and Handle Pattern?

The Cup and Handle pattern is a bullish continuation pattern that looks like a tea cup. It occurs when a stock is in an uptrend, takes a breather, forms a rounding bottom (cup), a slight pullback (handle) and then surges upwards again.

This pattern was designed by William O’Neil, an American businessman and novelist. He used this pattern effectively to identify stocks that were on the verge of large upward trends.

This pattern suggests to traders that the stock is consolidating for a breakout upwards. Additionally, it provides a definitive breakout point and a goal price.

How Does the Cup and Handle Pattern Come Together?

The Cup and Handle pattern consists of two principal components, which are the cup and the handle.

Cup Formation

The cup is formed when a price decreases and subsequently increases to reach a prior high which results in a U shaped curve. From the cup, it can be observed that sellers were in control for a period of time, but following their drop, buyers entered the market returning the price to the initial mark.

Handle Formation

Following the cup formation, the stock encounters the previous high where the stock’s price acts as a resistance level. The stock may experience a slight decline or sideways movement. These traders taking profits are known as the handle formation. It’s another way of telling traders that the stock is experiencing a pause.

Breakout

Upon completion of the handle, movement to the upper side of the resistance level with appropriate volume is considered a breakout. This trend usually brings about an uptrend with more traders entering the market at this time.

Why is the Cup and Handle Pattern Useful?

Traders find the Cup and Handle pattern attractive due to:

• Well defined breakout level.
• Well defined stop loss level.
• Acceptable profit target level approximated from the cup's depth.
• Good chance of success if the volume confirms the breakout.

This pattern is very useful for swing and positional traders, who maintain their positions for a few days to few weeks.

Introduction to Chartlink

Chartlink has a variety of features, but first, let’s explore what it is.

Chartlink is a free online platform that lets traders perform technical analysis of Indian stocks. With Chartlink, you can create personalised stock screeners or use pre-made ones. It provides real-time data for NSE stocks and is popular among Indian retail traders.

Chartlink has a user-friendly interface, allowing easy identification of technical indicators and patterns such as Moving Averages crossovers, Breakouts, RSI signals, and chart patterns including Cup and Handle.

How to Use Cup and Handle Pattern Chartlink Scanners?

Chartlink does not have an option to scan for the Cup and Handle pattern, but you can search for scans that try to meet the criteria set by this pattern.

To set up the Cup and Handle pattern Chartlink scanner, you may create one using specific criteria or search for public scanners on Chartlink.

In the preceding weeks, the stock should show a rounded bottom pattern.

The Price should be near or at the previous high.

A slight pullback or sideways consolidation can be evident.

A breakout candle should have formed above the resistance level.

Many Chartlink users share ready-to-use scanners titled "Cup and Handle Breakout" or "Near Cup and Handle Pattern". These can be freely accessed, and they assist you in monitoring breakout candidates.

You can subscribe to Chartlink’s alert service and receive an email or mobile notification whenever a stock meets your scanner’s conditions.

Which Timeframes Are Best for Using Cup and Handle Pattern Chartlink?

When selecting a chart pattern, timeframe selection is crucial.

Daily Timeframe

This is ideal for swing trading. On daily charts, the Cup and Handle pattern may take 2-6 weeks to form, and after the breakout, there's a solid opportunity to enter with the position for an additional 1-2 weeks post-holding period.

Weekly Timeframe

This is good for positional trading. On a weekly chart, it can take between 2 - 6 months to form the pattern. The breakout usually results in long-term moves and is suitable for investors who prefer holding for around 1 to 3 months.

While building or using a scanner, you can change the Chartlink scanner timeframe.

Key Points to Take Note of When Using the Cup and Handle Pattern

Even though the Cup and Handle Pattern is impactful, it is highly recommended to use them along with other indicators and confirmation signals. Here are some highlights:

Volume Confirmation

There should be an increase in volume during the breakout. This reaffirms the likelihood of credible buying power and mitigates the risk of a fake breakout.

Avoid Early Entry

Do not get into the trade just because the cup was formed. The handle and the breakout above the resistance is crucial for entry.

Risk Management

Set the stop loss just beneath the handle’s low to protect the investment in case the breakout does not happen.

Combine with Indicators

Make use of other tools like RSI, MACD, Moving Averages to support your analysis with other strategies to enhance accuracy.

Examples of Cup and Handle Pattern in Indian Stocks

We previously noted that Indian stocks tend to display Cup and Handle patterns prior to strong rallies. Here are some examples:

Infosys: Prior to a long-term uptrend, Infosys executed a textbook Cup and Handle pattern on the weekly chart.

Tata Motors: The stock experienced a strong breakout after forming this pattern on the daily chart.

Asian Paints: This stock has formed multiple small cup and handle patterns during its steady uptrend.

If you use the stock screener at Chartlink, you can check the passed charts of these stocks and familiarise yourself with the pattern.

Advantages of Using Cup and Handle Pattern Chartlink

With Chartlink, it is easier to scan this pattern because you would be saving time in optimising potential trades.

No need to individually analyse each chart.

Saves several hours of extensive chart analysis.

Receive up-to-date alerts as well as changes in the charts in real-time.

Aids in the creation of a watchlist that contains high-probability trades.

Applicable scanners can be used on large-cap, mid-cap or small-cap stocks.

If you are looking to become more selective in your trades and exercise better decision making, scanning through the Cup and Handle pattern Chartlink will help you increase your discipline and confidence.

Conclusion

Traders internationally employ and trust the cup and handle chart patterns, and Indian traders are no different. With tools such as Chartlink, traders do not need to waste precious time sifting through charts to find patterns; the device does all the heavy lifting for them.

If used correctly, a Cup and Handle pattern Chartlink scanner can prove to be quite beneficial to your trade. The scanner allows for traders to enter early in trending stocks and allows them to plan their trades with heightened confidence.

Still be aware that no pattern is accurate 100 percent of the time. Take proper precautions and verify your analysis with volume and indicators. Take caution, improve your strategy after every trade, and build upon your experience.