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English
The inverted cup and handle is a bearish chart pattern that is formed by a “cup” shaped pattern with a downward sloping handle. This pattern is created when the price of an asset experiences a significant price move, followed by a period of consolidation. The inverted cup and handle is a bearish pattern, which means that it is typically seen as a bearish sign and indicates that the asset’s price is likely to continue falling.
To form an inverted cup and handle, the asset’s price will typically make a “cup” shaped pattern, with the left side of the cup representing a significant price move and the right side representing a period of consolidation. The handle is then formed as the price continues to consolidate, typically forming a small flag or triangle shape with a downward slope. The pattern is typically completed when the price breaks through the support level, at which point it is likely to continue falling as traders enter into short positions.
One of the key characteristics of the inverted cup and handle pattern is that the trading volume tends to decrease as the pattern progresses. This is because the price is consolidating within a small range and there is less activity from traders. However, once the price does break through the support level, trading volume tends to increase as traders enter into short positions and push the price lower.
It is important to note that the inverted cup and handle pattern is a bearish pattern, but it is not a guarantee that the asset’s price will fall. As with any trading strategy, it is important to use risk management techniques and to always be aware of the potential for losses.
One way to trade the inverted cup and handle pattern is to set a sell order just below the support level, as this is where the price is likely to break through and start falling. Traders can also set a stop loss order just above the resistance level, in case the price does not break through the support and instead rises back up.
Another way to trade the inverted cup and handle pattern is to wait for confirmation that the price has indeed broken through the support level before entering into a short position. This can be done by looking for additional bearish signals, such as a bearish crossover on a moving average or a bearish candlestick pattern.
It is important to keep in mind that the inverted cup and handle pattern can take some time to form, as the price needs to experience a significant price move and then consolidate within a small range before breaking through the support level and falling. Traders should be patient and wait for the pattern to complete before entering into a trade.
