Cup and Handle
Cup and Handle is a price pattern which can be observed in every time frames. After a downtrend price takes on some sideways and retraces to the previous peak forming a soft U-shape, a cup. Left and right peak are not necessarily at the same level. Afterword, price takes correction movements to usually 1/3 of the uptrend of the cup. This part forms a handle. The pattern ends when price breakouts of this correction and continues to rise.
A trader should avoid cups with “V” bottoms and look for “U” shapes that last longer and, thus, provide a stronger signal. Cups also should not be too deep, and handles should last at most until half of the cup. Trading volume decreases as price declines and increases as soon as the price starts to increase testing previous peak.
After the handle is formed trader enters in a position as soon as price breaks above the top of the cup as it is expected to rise after. Stop loss should be placed just below the lowest price of the handle. A take profit level can be determined by taking the distance from the bottom of the cup to the breakout level and placing it upward from the breakout.
Triple top/ triple bottom
Triple tops and bottoms are reversal price patterns in which price peaks or dips three times in an approximately same price level in three different instances.
In case of triple top price reaches one support in three consecutive times and reverses in a downtrend. Volume gradually decreases from the first to the third peak. Once price breaks the support that level becomes new resistance. Price targets are set to the levels which are equal to the height of the pattern subtracted from the breakout point. Stop loss is just above the latest top.
The same logic is followed in the triple bottom where the price drops to one level of support for three times and reverses in an uptrend. The pattern ends when the price breaks above the high of the latest pullback. The price target is on the level equal to the height of the pattern added to the breaking point. Stop loss is just below the most recent bottom.
Triple tops and bottoms can take the form of a head and shoulders and reverse head and shoulders if the second peak/bottom is longer than the other two around it. However, trading strategies are similar.
ABCD is the most basic price patterns. It consists of three price swings in which AB and CD are “legs” nearly the same length and BC is a correction movement. In bullish ABCD price reverses after a downtrend. The bearish pattern is formed after an upside when price reverses to the down.
This harmonic pattern follows Fibonacci rules as C point retraces at 61.8% – 78.6% of the AB leg. While D point should be at the 127.2% – 161.8% Fibonacci Extension of BC correction.
When the pattern is identified, the trader enters in a position after the D point. The stop loss level is just above (below) the end of CD move. Take profit is at least on the level which represents the length of the CD. After that level part of the position can be closed and part can be left open for a further price movement.