Trade Plan: Inverse Cup and Handle One of the more basic price patterns that many traders learn early on in their trading career is the “Cup and Handle“. In the blog links below we also discuss this price pattern trading strategy. However, in this trader tip we will discuss a little of the inverse of this price pattern. One could combine these two Trade Plans in your personal ToolBox to be ready to capture multiple set-ups, no matter which way the market moves.
Description: The idea with this Trade Plan is to find a price pattern that looks like a traditional cup and handle (see graphic) price pattern. In our example, we shall discuss the Long case, but the inverse for the Short case would also be true. The left and right side of the cup forms a bowl, then a subsequent additional smaller bowl to form the handle. The only exception is that the trend should also be reversed. In a bullish Cup and Handle, price would be running up. In an inverse Cup and Handle, price would be breaking down. One should also establish a minimum depth of the bowl in Pips. The handle should be between 25 to 50% of the depth of the bowl of the cup and then back up to the cup’s lip. In our case, we will be looking for the inverse situation for this Inverse Cup and Handle Trade Plan.
Trigger: The Trigger is the break down below the handle of the cup, once the cup and handle pattern that has occurred.
Target: One to two times the stop amount.
Stop: The stop is at the top of the handle, or the lip of the cup and handle price pattern.
Order Management: Place a buy/sell stop at the trigger price to ensure one does not miss the entry, or be ready to enter with a market order. Ensure that you have a PSR (Profit Stop Ratio) of at least 1 to 1, but preferably closer to 2 to 1.
Filter: If there are any major economic or market events occurring at the time of the trigger, consider avoiding the set-up.
One could consider doing this Trade Plan on 15-minute or 1-hour times series charts for the best results. Give this Trade Plan a look and see if you can make it work and/or improve upon it.
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