Triangle Pattern Trading Strategy #2
Our next strategy for the cup and handle pattern is to enter on the first pullback after the initial breakout.
As covered in the previous setup, one of the ways to trade the cup and handle pattern is to enter just before the price breaks out of pattern.
However, sometimes the breakout might be too fast, or you might have missed the breakout opportunity.
After such a long build-up (the cup and also the handle), it is very likely that any resulting move up would have more than 1 leg, so the first pullback/pause is a good place to enter because there is a high chance of a 2nd leg after the trend resumes.
In the example above, we see prices surge after the initial breakout, followed by a small pause which looks like a bull flag, before prices continue to surge again after breaking out from the flag pattern.
That small pause (in this case the bull flag) gives us a good low risk opportunity to get into the trade to ride the next wave of uptrend. Do note that the pause may not always be a flag, sometimes it might take other forms, but the idea is the same.
For trading, we would look to enter during the pause (formation of the small flag), when the risk and volatility is low. The bottom of the pullback pattern would be a good place to put your stoploss.
If you have already taken a position using Strategy #1 on the pre-breakout, you can also use Strategy #2 to add more positions on the first pullback.
Personally I feel that this pattern is not useful at all. So hard to apply in real life.