It creates a U-shape, or the "cup" in our "cup and handle." The price then moves sideways or drifts downward within a channel—that forms the handle.
Entering a Trade :
When the price moves out of the handle, the pattern is considered complete, and the price is expected to rise.
While the price is expected to rise, that doesn't mean it will. The price could rise a little and then fall, it could move sideways, or it could fall right after entry. For this reason, a stop-loss is needed.
Setting a Stop-Loss
Place a stop-loss below the lowest point of the handle. If the price oscillated up and down a number of times within the handle, a stop-loss might also be placed below the most recent swing low.
Since the handle must occur within the upper half of the cup, a properly placed stop-loss should not end up in the lower half of the cup formation.
Picking a Target or Profitable Exit
Whatever the height of the cup is, add that height to the breakout point of the handle. That figure is the target.