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I’ve got to be honest with you — I’m not a huge fan of the cup and handle pattern. Most traders learn to spot the shape, but they completely miss what’s actually happening underneath.
Here’s the thing…
The cup and handle is really a variation of a collapsing volatility pattern. Once you understand that, everything changes. You’re not just looking for a pretty chart formation anymore — you’re tracking how buyers behave as the trading range tightens.
Let me show you what I mean using the Invesco DB Agriculture Fund (DBA) as an example.
Reading the Sequence That Actually Matters
The real insight isn’t the shape — it’s the sequence of rejections. First, the price rejected a bottom level, then it rejected the same top. That’s your initial range.
But watch what happens next. The price couldn’t fall as low before getting rejected again. Then it rejected that same top level once more. Again, it couldn’t fall as low. Finally, it broke through.
This sequence tells you a lot. We have buyers at the first level, buyers at a higher level and buyers at an even higher level. That’s not random — it suggests institutional money may be stepping in at progressively higher prices.
Market conditions still matter. There are periods when institutions simply don’t want to put much capital to work, so the pattern by itself isn’t proof of accumulation. You need evidence that larger participants are actually involved.
The Volume Confirmation You Can’t Ignore
That’s where volume comes in. If big volume candles appear as the range tightens or the breakout develops, you can usually see institutional action almost instantly. Those volume surges help distinguish genuine accumulation from a chart that merely resembles a cup and handle.
After the breakout in DBA, the price pulled back without quite reaching the previous low. That’s a constructive pullback because buyers stepped in before the old support level had to be tested again. It can also create a more attractive entry point by allowing you to define risk beneath the nearby structure instead of chasing the initial breakout.
The difference between recognizing a pattern and understanding what’s driving it separates traders who chase shapes from traders who follow the money. Stop looking only for cups and handles…
Start looking for collapsing volatility, progressively higher support and the volume fingerprints that reveal whether institutions are participating.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. There’s an Insane Spike in Options Volume Happening…
And I found one setup that could give us a run at double digits within days.
