Cupand Handle Pattern

identify the cup

I will like to share some of the charts for cup and handle. But I don’t think we can attach our charts in the postings. For cup and handle reversal, look for a strong accumulation base to build the move. For cup and handle continuation, look to trade with the trend, especially if the trend is strong. In the diagram below, you can see that the price pattern consists of a larger accumulation base , before forming a smaller accumulation base , before finally leading to a breakout.

price chart

There are several ways to approach trading the cup and handle. You need to enter a buy trade on the breakout of the handle’s resistance trend line. In this case, a trader should set the Stop Loss order slightly below the handle’s trendline. A profit target will be at the resistance trend line, connecting two highs of the cup. But little did you know…if you had carefully studied the cup from which you drink your tea every day, you would be a millionaire by now. That’s because the tea cup has given rise to a very popular price pattern named the cup and handle pattern.

Sign up for Market Minutes to receive powerful market analysis, top trade ideas, & helpful blog updates. Proper handle depth – Handles typically slope lower, but the low of the handle should not be more than 12% below the handle high. More than 15% below the high is too deep, and increases the odds of pattern failure.

It is a bullish continuation pattern which means that it is usually indicative of an increase in price once the pattern is complete. Making investments based on chart patterns is a norm nowadays as they help traders better understand technical analysis. The cup and handle indicator has long been used by traders to determine the direction in which an asset/stock may move. average confirmation – The 50-day moving average should be above the 200-day moving average, and both moving averages should be trending higher. Traders use this indicator to find opportunities to buy securities with the expectation that their price will increase. StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites. In addition,StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any useof this information. Should seek the advice of a qualified securities professional before making any investment,and investigate and fully understand any and all risks before investing.


The handle often takes the form of a sideways or descending channel or a triangle pattern. When the price breaks out of the handle, the pattern is considered complete, and the price is expected to rise. Chart patterns, like a triangle, rectangle, head and shoulders, or—in this case—a cup and handle are a visual way to trade. The cup and handle pattern, also sometimes known as the cup with handle pattern was first identified by stockbroker William O’Neil in 1988. Like all technical indicators, the cup and handle should be used in concert with other signals and indicators before making a trading decision. Specifically, with the cup and handle, certain limitations have been identified by practitioners.

Cup and Handle Pattern

For, we would look to enter during the pause , when the risk and volatility is low. The bottom of the pullback pattern would be a good place to put your stoploss. Hence, it makes more sense to make good use of your trading capital, and only enter the trade as the action is about to start. Looking at the diagram above, you might think that the best place to enter a trade is during the cup phase, because you can get the best entry price.


This pattern is one of the most popular bullish continuation patterns which can help you mint money in the stock markets. Yes, the cup and handle pattern is considered a bullish continuation pattern. Strong andhigh-performing growth stocksgenerally form cup and handle patterns during their bull runs. The forming of this pattern allows the stock to base or take a “breather” before its next move up and is seen as healthy action.

Breaks that resistance level with high volumes and closes above it for a few days, it is said that the share is in strong momentum and we can expect a good up move. So, now let’s find out the reason by understanding the psychology behind the formation of the cup and handle pattern. A bullish continuation indicates that the uptrend is going to sustain in the future. So, a continuation pattern would occur in the middle of an uptrend and signal that once the pattern is complete and once you receive a confirmation, the uptrend will resume. The one thing to point out is that on the breakout, the stock used a lot of gas just to work its way through the cloud.

A few key factors contribute to forming a cup and handle pattern. Investor sentiment is important– cup and handle patterns typically appear when investors feel bullish but are starting to get a bit cautious. One of the most common chart patterns is the cup and handle pattern. Learn more about the cup and handle pattern, how to identify it on a stock chart, and how you can use it in your trading. The price drifts sideways or moves downward within a channel that forms the handle.

As soon as the price moves out of the handle, the pattern is complete and the underlying asset/stock may rise. However, it can decline as well, which is why a stop-loss is needed. The cup forms after an advance and looks like a bowl or rounding bottom.

She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate. Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.

The High Tight Flag Chart Pattern of upwards movement — a successful breakout leads to new price highs opening up buying opportunities. Other examples of continuation patterns include pennants, bullish and bearish flags, and ascending and descending triangle patterns. (If you come across this pattern on the 5-minute candlestick price chart, you should open an order with the expiration time of minutes).

  • Volume should ideally rise at least 40% above its 50-day average.
  • For one, the pattern is relatively easy to identify on a chart thanks to its distinct teacup shape.
  • It’s important to note that even O’Neil says the pattern isn’t an exact science.
  • This drop, or “handle” is meant to signal a buying opportunity to go long on a security.

For a real trader trading on the Forex market, it is huge, because these patterns make it possible to predict the behaviour of the price. ⚠️If one of the trend continuation patterns appears in front of us on the chart, it means that the usual correction… Another issue has to do with the depth of the cup part of the formation.

The funny thing about the formation is that while the handle is the smallest portion of the pattern, it is actually the most important. A double bottom has a ‘W’ shape and is a signal for a bullish price movement, as price has hit a support level twice and failed to sell off further. The bulls have the upper hand here, and as they buy, prices will rise. After a cup and handle pattern forms, the price should see a sharp increase in the short- to medium-term.

When looked at closely, it looks like a cup with a handle. The handle can be a small consolidation or slight pullback. The chart below shows how a cup and handle pattern look like. 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. Pure long-term technical traders tend to follow the seven weeks or more rule. The reasoning behind this explanation is that the breakout move requires strong volume after the necessary quiet period to form both the cup and the handle.

Cup And Handle

Have read to learn this pattern from a couple of other platforms but it was a bit difficult for me to comprehend, but it was easier for me to understand here. Every day we provide members with mentorship, webinars, chat, trading education, and community. It’s all so you can ask questions, get answers, and find your market groove. The subsequent decline ended within two points of theinitial public offering price, far exceeding O’Neil’s requirement for a shallow cup high in the prior trend. The subsequent recovery wave reached the prior high in 2011, nearly 10 years after the first print.


Note that in both cases, the profit targets should be applied right from the breakout point. Before reaching the Target 2, the price action experienced a pullback, that is, a weak bullish move. The first target is equivalent to the size of the handle, while the second target is equivalent to the size of the cup. This is the point where the price reverses and begins to move in a bearish direction. The position at which a breakout through the handle occurs has been shown. This will prevent you from incurring more losses in case the price reverses in a bearish direction.

Market Indicators

The cup is formed as the price consolidates in a small range following a sharp decline. This consolidation forms the “handle,” which is typically a shorter-term downtrend. Investors typically trade an inverse cup and handle by selling when the price breaks below the handle.

If you’re not ready to start straight away, you can practise your trades on a risk-free demo account. You could also place an order above or below the handle to buy or sell when the asset reaches a more favourable price. An order allows you to open a position at a price you choose, rather than the one currently being quoted. With forex trading, you don’t own the underlying asset, which means you can go long or short . Remember that you should always use your knowledge and risk appetite to decide if you are going to trade based on ‘buy’ or ‘sell’ signals. The entire electric vehicle sector was going crazy that week.

Trading range forms on the right-hand side as the cup is completed, and that makes the handle. A subsequent breakout from the trading range of the handle shows a continuation of the prior advance. These are the traders who had entered into the short position at the handle. Looking at the strong bullish momentum, they will run to cover their positions in losses. Whereas, as there has been a breakout, more and more traders will turn optimistic about the stock and buy it which contributes to the up move. When the stock is near the resistance level, there will be heavy selling, which will result in high volumes.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top