Image Placeholder

Cup And Handle Chart Patterns

handle formation

Finally, when the price breaks out of Resistance, the cup and handle pattern is “confirmed”, and the market could move higher. This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

exit your trades

Today, were going to cover another low float parabolic stock, OPTT. There have been many of these types of trades in the last couple weeks. Call me crazy, but actually using the technicals right in front of my face makes far more sense than applying some universal profit target system.

The pattern’s formation may be as short as seven weeks or as long as 65 weeks. 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. If the stock is unable to close above the cloud, then the bears are in control and longs should step aside.

What is the Cup and Handle pattern and how does it work?

Wynn Resorts, Limited went public on the Nasdaq exchange near $11.50 in October 2002 and rose to $164.48 five years later. The subsequent decline ended within two points of the initial public offering price, far exceeding O’Neil’s requirement for a shallow cup high in the prior trend. The subsequent recovery wave reached the prior high in 2011, nearly four years after the first print. The handle follows the classic pullback expectation, finding support at the 50% retracement in a rounded shape, and returns to the high for a second time 14 months later. The stock broke out in October 2013 and added 90 points in the following five months. The cup and handle is one of many chart patterns that traders can use to guide their strategy.

  • Relative strength oscillators now flip into new buy cycles, encouraging a third population of longs to take risks.
  • The buy point occurs when the stock breaks out or moves upward through the old point of resistance .
  • IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.
  • You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money.
  • The cup part of the pattern should be fairly shallow, with a rounded or flat “bottom” (not a V-shaped one), and ideally reach to the same price at the upper end of both sides.

Typically, the “cup and handle” is a bullish pattern and can be considered a continuation and reversal formation. Another related technical analysis indicator to keep in mind is an inverted cup and handle pattern. Some traders consider that pattern a harbinger of a downtrend in the asset’s price that helps identifying selling opportunities. The security finally broke out in July 2014, with the uptrend matching the length of the cup in a perfect measured move.

Or, the must show a minimum 20% increase from a prior breakout. The buy point occurs when the stock breaks out or moves upward through the old point of resistance . For example, if a cup forms between $99 and $100, the handle should form between $100 and $99.50, ideally between $100 and $99.65. If the handle dives too deep and erases most of the gains of the cup, you should avoid trading the pattern.

If the cup and handle form after a downtrend, it could signal a reversal of the trend. To improve the odds of the pattern resulting in an actual reversal, look for the downside price waves to get smaller heading into the cup and handle. The smaller down waves heading into the cup and handle provide evidence that selling is tapering off, which improves the odds of an upside move if the price breaks above the handle.

How to activate Level Up Bonus?

A rounding bottom is a manage me guide to hot jobs and careers pattern used in technical analysis that is identified by a series of price movements that graphically form the shape of a “U.” The target with the cup and handle pattern is the height of the cup added to the breakout point of the handle. Generally, these patterns are bullish signals extending an uptrend.

The stop-loss controls risk on the trade by selling the position if the price declines enough to invalidate the pattern. An ascending triangle is a chart pattern used in technical analysis created by a horizontal and rising trendline. The pattern is considered a continuation pattern, with the breakout from the pattern typically occurring in the direction of the overall trend. Price action is an important and common trading strategy that traders use to identify entry and exit positions.


Once this happens, the the cup advances and forms a U, and the price drifts downward slightly forming the handle. Also, when the stock is breaking out, you should generally see a rush in turnover. Volume should ideally rise at least 40% above its 50-day average. Big caps sometimes can break out successfully with smaller volume surges. Opponents of the V-bottom argue that prices don’t stabilize before bottoming and believe the price may drop back to test that level. But, ultimately, if the price breaks above the handle, it signals an upside move.

Volume On The Breakout

A Cup and Handle can be used as an entry pattern for the continuation of an established bullish trend. The cup has a soft U-shape, retraces the prior move for about ⅓ and looks like a bowl. After forming the cup, price pulls back to about ⅓ of the cups advance, forming the handle. The full pattern is complete when price breaks out of this consolidation in the direction of the cups advance. There are several ways to approach trading the cup and handle, but the most basic is to look for entering a long position. The image below depicts a classic cup and handle formation.


We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

The cup and handle pattern is part of the so-called continuation patterns. Other such patterns are the ascending and descending triangle pattern and bullish and bearish flags and pennants. The cup part of the pattern should be fairly shallow, with a rounded or flat “bottom” (not a V-shaped one), and ideally reach to the same price at the upper end of both sides. The drop of the handle part should retrace about 30% to 50% of the rise at the end of the cup. For stock prices, the pattern may span from a few weeks to a few years; but commonly the cup lasts from 1 to 6 months, while the handle should only last for 1 to 4 weeks.

If the price oscillated up and down several times within the handle, a stop-loss might also be placed below the most recent swing low. Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.

How to trade the cup and handle

In most cases, you should ensure that the depth is about a third of the previous upward trend. A good way to note this is to use the Fibonacci Retracement. In a trending market, the price can remain above a Moving Average for a long period of time. This means it could be the start of a NEW uptrend and the last thing you want to do is cut your profit short. If you ask me, it’s when the price breaks below the low of the handle, thereby invalidating the Cup and Handle pattern.

A conservative price target can be achieved by measuring the height of the handle and adding it above the resistance level at the top right-side of the cup. That means the asset’s price, which is trending lower to form the handle, should not drop to level of the lower half of the cup. Ideally, the price should stay within the top 1/3rd of the height of the cup. Commodity and historical index data provided by Pinnacle Data Corporation.