Cup and Handle Pattern

A Cup and Handle pattern is a bullish continuation pattern that resembles a teacup on a candle chart followed by a breakout. The cup part of the pattern is where the price gradually changes its direction from bearish to bullish. The handle part is when the price pullback slightly before roars higher and continues the previous trend. Cup and handle is used to understand the reinforcement of the trend and explains in case you want to double your position or sustain the position for a longer time period. This pattern can take between 30 to 60 candles to form on any given time resolution.

1. Cup: The cup should be “U” shaped and resemble a bowl or rounding bottom. Generally, cups with longer and more “U” shaped bottoms, the stronger the signal. The cup should not be too deep. The depth of the cup should retrace 1/3 or less of the previous advance. Volume should dry up on the decline and remain lower than average in the base of the bowl.

2. Handle: After the high forms on the right side of the cup, there is a pullback that forms the handle. The smaller the retracement, the more bullish the formation and significant the breakout. Sometimes this handle resembles a flag.

If the right side of the handle breaks above the peak formed between the cup and the handle, it confirms that the pattern is complete and that the uptrend will resume. There should be a substantial increase in volume on the breakout above the handle's resistance. The projected advance after breakout can be estimated by measuring the distance from the right peak of the cup to the bottom of the cup.