What Does a Cup and Handle Pattern Tell You?
American technician William J. O'Neil defined the cup and handle (C&H) pattern in his 1988 classic, How to Make Money in Stocks, adding technical requirements through a series of articles published in Investor’s Business Daily, which he founded in 1984.
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William J. O'Neil. "How to Make Money in Stocks." McGraw-Hill Education, 2009.
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.
As a stock forming this pattern tests old highs, it is likely to incur selling pressure from investors who previously bought at those levels; selling pressure is likely to make price consolidate with a tendency toward a downtrend trend for a period of four days to four weeks, before advancing higher. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities.
It is worth considering the following when detecting cup and handle patterns:
Length: Generally, cups with longer and more "U" shaped bottoms provide a stronger signal. Avoid cups with sharp "V" bottoms.
Depth: Ideally, the cup should not be overly deep. Avoid handles that are overly deep also, as handles should form in the top half of the cup pattern.
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.
Weekly Point view
Sector Point View
American technician William J. O'Neil defined the cup and handle (C&H) pattern in his 1988 classic, How to Make Money in Stocks, adding technical requirements through a series of articles published in Investor’s Business Daily, which he founded in 1984.
1
William J. O'Neil. "How to Make Money in Stocks." McGraw-Hill Education, 2009.
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.
As a stock forming this pattern tests old highs, it is likely to incur selling pressure from investors who previously bought at those levels; selling pressure is likely to make price consolidate with a tendency toward a downtrend trend for a period of four days to four weeks, before advancing higher. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities.
It is worth considering the following when detecting cup and handle patterns:
Length: Generally, cups with longer and more "U" shaped bottoms provide a stronger signal. Avoid cups with sharp "V" bottoms.
Depth: Ideally, the cup should not be overly deep. Avoid handles that are overly deep also, as handles should form in the top half of the cup pattern.
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.
Weekly Point view
Sector Point View