Cup and Handle Pattern
The Cup and Handle is one of the most recognizable bullish continuation patterns, favored by growth stock and forex traders.
Pattern Anatomy
The Cup
- U-shaped rounded bottom formation
- Gradual decline followed by gradual recovery
- Left rim and right rim at approximately same level
- Duration: Several weeks to months
- Volume decreases during the base and increases on right side
The Handle
- Small pullback after right rim forms
- Drifts downward or sideways
- Lower volume during handle formation
- Should not retrace more than 50% of cup depth
- Duration: 1-4 weeks typically
Trading Rules
Entry
- Buy on breakout above handle resistance (right rim level)
- Volume must confirm (higher than average)
- Wait for candle close above breakout level
Stop Loss
- Below the handle low
- Or below the midpoint of the cup
- Depends on your risk tolerance
Profit Target
- Measure cup depth (rim to bottom)
- Project that distance upward from breakout point
- Conservative target: 50% of cup depth
Pattern Quality Checklist
Strong Cup and Handle
- Smooth U-shape (not V-shape)
- Handle in upper half of cup
- Volume pattern correct
- Prior uptrend exists
Weak Cup and Handle
- V-shaped bottom
- Handle retraces too deep
- Low volume on breakout
- No prior trend
Variations
Inverted Cup and Handle
- Bearish continuation pattern
- Mirror image of bullish version
- Less common but effective
Key Takeaways
- Patience is required as pattern takes time
- Volume confirmation is crucial
- Handle should be shallow
- Works on all timeframes
- Best in uptrending markets