Cup And Handle Formation

cup with handle

The formation of the handle also begins immediately after the formation of the cup. The price action begins by making a gradual bearish move. In some cases, the start of the price decrease and the end of the price increase may diverge in terms of the level that they are supposed to be located at. It all depends with the price move before the formation of the pattern. This pattern occurs regularly within financial markets.


The chart below shows a typical “cup-and-handle” formation with the measured targets. Hartalega As Topglove And supermx possible forming a triangle BUT a variant as cup and handle or VCP pattern. Hi Traders, Investors and Speculators of the Charts 📈📉 CVXUSDT is another altcoin with massive upside potential. Infact, after consolidating for such an extended period, a parabolic move to the upside is very possible. In the chart, I’ve pointed out 3 take profit zones based on candle wicks , but you can always add more TP points…

First things first … This doesn’t fit the “7 to 65 weeks” cup definition I quoted from O’Neil’s book above. If you have limited time, create your process around that. You can easily limit scanning, and the analysis, to about 20 minutes an evening.

handle chart pattern

O’Neil liked a handle as opposed to an uptrending handle. His backtesting showed uptrending handles often lead to cup and handle pattern failure. In the case of an inverse cup and handle, it’s bearish.

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. Volume is directly proportional to prices in this pattern. As the price of the asset falls, volume of trading will also fall. The volume shall be lower than average at the cup’s base. After this, volume shall increase as price also starts moving up on the way back to old high points.

But, when is the right time to exit the trade?

The handle is nothing but a consolidation before the breakout. Time period for formation of the cup usually ranges between 1 to 6 months, and in some cases, it could be a bit more. At the same time, handles may get formed between 7 to 28 days.

A breakout followed, moving price above resistance of $63.75. The bullish continuation initiated by the cup and handle was confirmed at the point of breakout by a thrusting lines candlestick, a bullish continuation. The ensuing bullish trend, marked by the trendline, continued into March, when a retracement appeared.

Some traders like these types of cups, while others avoid them. Those that like them see the V-bottom as a sharp reversal of the downtrend, which shows buyers stepped in aggressively on the right side of the pattern. Whatever the height of the cup is, add it to the breakout point of the handle. For example, if the cup forms between $100 and $99 and the breakout point is $100, the target is $101.


Order execution should only occur if the price breaks the pattern’s resistance. Traders may experience excess slippage and enter a false breakout using an aggressive entry. The chart shows two potential entry points denoted by the green arrows. The first entry takes place on the breakout above the upper end of the price channel akin to a bullish flag with a spike in volume as verification of the move up.

Price to Earnings (PE) Ratio: Meaning, Formula & Benefits

While the cup and handle pattern can be useful as an indicator, there is no guarantee that stock prices will rise. Now you have another chart pattern in your tool belt to study. The cup and handle is one of the classic patterns that every trader should know. Cup and handle chart patterns can last anywhere from seven to 65 weeks.

The breakout signal can occur in different ways depending on the trader’s preference. Some trader’s look at the resistance level taken from the horizontal between the highs of the cup. Other traders use a break of the handle trendline as a long entry point. For the purposes of this article, I want to introduce you to the idea of buying the cup and handle breakout when the candlestick closes above the Ichimoku cloud. For those unfamiliar with the indicator, if the stock is able to close above the cloud convincingly, this is additional confirmation of the strength of the trend.

  • This method is less aggressive, but the patience of additional confirmation can shield against a false breakout with regards to the handle channel.
  • The target with the cup and handle pattern is the height of the cup added to the breakout point of the handle.
  • In this article, I will cover 3 strategies for trading cup and handle patterns that you will not find anywhere else on the web.
  • In some cases, the start of the price decrease and the end of the price increase may diverge in terms of the level that they are supposed to be located at.
  • The traders who had bought the stock at the left edge of the cup have experienced the entire dip in the stock.

The cup and handle pattern is formed when prices tend to bottom out, forming a gradual decline and then a smooth rally higher. Upon reaching the previous support level, prices tend to break the support turned resistance only to fall back a small distance, forming a handle. But, few naive traders who do not follow the charts buy the stock at the resistance level thinking that the stock price would rise further.

Options Trading breakout After the formation of the cnh, the market will try to make a run, temporarily breaking the horizontal resistance. A rounding bottom is a chart pattern used in technical analysis that is identified by a series of price movements that graphically form the shape of a “U.” 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. The first is that it can take some time for the pattern to fully form, which can lead to late decisions. If you are trading a bullish cup and handle formation, you should place a stop loss order just below the lower level of the handle.

Remember, the handle usually begins with a down day in price, and can morph into a base of its own in certain cases. That’s not a problem; it’s often a stock’s way of offering a buy point that’s clearer or lower than that suggested by the larger pattern. During bear markets, some good cup-with-handle bases show a large decline within the handle.

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The second profit target is estimated by measuring a distance equal to the depth of the cup, again, starting from the point of the breakout. A Cup and Handle pattern is a pattern of price movement on the trading chart that resembles a cup with a handle, from where it derives its name. The cup section of the pattern is formed by a u-shaped price movement, while the handle is a short price channel from the edge of the cup. The handle is actually a pullback after the right swing of the cup.

The Breakout Setups and Momentum Squeeze Play Setups are where you will likely find cup and handle and continuation patterns. Use this screening method to stay on top of hot stocks, know when they are setting up, and have your orders placed for when they explode. This is how I scan for cup and handle and triangle patterns. The security returns to resistance for the second time and breaks out, yielding a measured move target equal to the depth of the cup. O’Neil included time frame measurements for each component, as well as a detailed description of the rounded lows that give the pattern its unique teacup appearance.

A cup and handle formation is considered significant when it follows an increasing price trend, ideally one that is only a few months old. The older the increase trend, the less likely it is that the cup and handle will be an accurate indicator. The trade volume should decrease along with the price during the cup and should increase rapidly near the end of the handle when the price begins to rise. The cup and handle is one of many chart patterns that traders can use to guide their strategy. The traders who had bought the stock at the left edge of the cup have experienced the entire dip in the stock. When the stock pulled back to the right edge, they still didn’t cover their position at the breakeven point .

That’s why we designed StocksToTrade to have such incredible, easy-to-customize charts. You can add in lines for support or resistance, use technical indicators, easily export to review later, and so much more. I often tell new traders to study charts until their eyes bleed. That’s a bit of an exaggeration, but I want every trader to understand how much a chart can tell you. If the pattern is successful, there’s a good chance for another breakout after the stock passes the cup’s previous high.