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The inverse cup and handle is a bearish continuation chart pattern.
How do you identify it?
The pattern usually appears in a downtrend and forms in the following stages:
- Price starts to recover, moving through a series of highs and lows that form the inverted cup
- Price then pulls back towards the neckline and forms a handle, shaped like a small ascending channel
- The pattern is confirmed when price breaks below that channel
The inverse cup and handle also has a bullish version, which works the other way round.
How do you trade an inverse cup and handle?
You can trade the pattern by entering short when price breaks below the handle.
To calculate the take-profit, measure the height of the inverted cup, from its top to the neckline, and project that distance below the breakout point.
The stop-loss usually goes at the most recent high formed by the handle.
