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Cup and Handle Patterns

Cup and Handle Pattern on ASX200

Cup and Handle Pattern on ASX200

Cup and Handle Pattern on ASX200 is a classical chart pattern, located at the end of a 39% drop. Therefore, it has bullish implications.

The premise

The first thing that you need to know is that ASX200 is an index of stocks listed on the Australian Securities Exchange. Now, let’s take a look at the daily chart of the ASX200. We’ll see that we have an uptrend at the left part of the screen. And after that we have a 39% drop. And, at the end of the drop, we have our cup and handle pattern. So, it is this cup and handle pattern which might signal the end of the drop and a possible bull run.

cup-and-handle-pattern-on-asx200-detail
Cup and Handle Pattern on ASX200 daily chart detail

How did I trade the cup and handle pattern on ASX200?

I simply placed a buy stop order slightly above the resistance of the pattern. And, I considered resistance, the April 17th, 2020 daily candle high. Consequently, my order is open on May 21st, 2020.

The outcome

This is one of the most interesting outcomes from my trades. And that’s because, for a successful trade, one needs two things. The first is direction and the second is timing. Therefore, if one of them is missing then you don’t have a good trade. So, in this case, the breakout candle activated my buy stop order. And, after that, the price went down in the same day. And also did the same in the following day. So, after my stop loss was hit, the second day, the price went up again and broke the pattern. But, without me on board, because I didn’t find another good entry point. I know, that the third day was a breakout candle, but I didn’t want to jump again into the trade, so soon.

the-outcome-of-the-cup-and-handle-pattern-on-asx200
The outcome of the Cup and Handle Pattern on ASX200 daily chart

The conclusion

I know that some of you might argue that I should’ve been open another trade in the third day. And you might be right. But, I wasn’t very comfortable to do it so soon. And I really don’t think that this is a mistake. Perhaps, a better option to manage this trade would’ve been to cut my loss when I saw that the breakout day ended up as a bear candle. And I should’ve been wait two more days after that and open another trade when the real breakout candle showed up. In this way, I would’ve been lost only half of my initial risk instead of a full initial risk. And with the other half of my initial risk I could’ve opened the trade again when I saw the real breakout candle. But, this is a lesson learned and I’m sure it will be useful into the future.

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