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Cup and Handle Pattern

The cup and handle pattern is a bullish continuation pattern that resembles a cup with a handle. It has three parts - the cup, which is U-shaped; the handle, which is a slight downward drift signaling a buying opportunity; and the neckline. For a valid pattern, the prior trend should be uptrending, the cup should be rounded without a sharp V bottom, and the handle and cup depths should be no more than 50-60% of previous price swings. A break above the neckline on high volume confirms the pattern and the target is equal to the cup depth.

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136 views3 pages

Cup and Handle Pattern

The cup and handle pattern is a bullish continuation pattern that resembles a cup with a handle. It has three parts - the cup, which is U-shaped; the handle, which is a slight downward drift signaling a buying opportunity; and the neckline. For a valid pattern, the prior trend should be uptrending, the cup should be rounded without a sharp V bottom, and the handle and cup depths should be no more than 50-60% of previous price swings. A break above the neckline on high volume confirms the pattern and the target is equal to the cup depth.

Uploaded by

pks
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is a Cup and Handle pattern?

• The pattern resembles a cup with a handle, where the cup is in the shape of a "u" and the
handle has a slight downward drift.
• This drop, or “handle” is meant to signal a buying opportunity. When this part of the price
formation is over, the stock may reverse the course and reach new highs.
• It is a bullish continuation pattern i.e. it extends the existing uptrend

Parts of a Cup and Handle pattern:


The cup and handle chart has 3 main components:
• Cup
• Handle
• Neckline/Resistance
Important aspects:
1. Prior Trend: The cup and handle pattern is a bullish continuation pattern, hence the
prior trend should be an uptrend.

2. Cup length: Generally, cups with longer and more "U" shaped bottoms provide a
stronger signal. It should resemble a rounding bottom. This ensures that the cup is a
consolidation pattern with valid support at the bottom of the “U”. The perfect
pattern would have equal highs on both sides of the cup, but this is not always the
case. Avoid cups with sharp "V" bottoms because there is almost no consolidation in
that case.

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3. Cup depth: Ideally, the cup should not be overly deep. In practice, the cup depth can
be up to 60% of the last swing move. In my opinion, the best cups often have a depth
of about 50% of the last swing.

4. Handle: Avoid handles that are overly deep also, as handles should not exceed 50%
depth of the cup. The best cup and handle patterns have a shallow retracement on
the handle (not more than 1/3 of the cup). However, in some situations, the price
may retrace up to 0.618 Fibonacci level.

5. Breakout: Bullish confirmation comes when the pattern breaks above the neckline
made using the prior highs with a good volume.

6. Volume: Volume should decrease as prices decline and remain lower than average in
the base of the bowl; it should then increase when the stock begins to make its move
higher, back up to test the previous high.

7. Target: The profit target is equal to the depth of the cup. It can be measured by the
distance between the bottom of the cup and the neckline, and extending that
distance upward from the breakout level.

8. Stop loss: Ideally, the stop loss is placed at the lowest point of the handle. But if the
price oscillated up and down a number of times within the handle, the stop-loss can
also be placed below the most recent swing low.

Telegram: @johntradingwick | Tradingview: @johntradingwick | Twitter: @johntradingwick


Examples of the cup & handle pattern:

Telegram: @johntradingwick | Tradingview: @johntradingwick | Twitter: @johntradingwick

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