The Cup and Handle is a bullish continuation pattern that helps traders identify entry points for long positions.
It signals that after a correction, buyers are regaining strength, preparing the price for a new upward movement.
Stages of Formation
Initial upward move — a strong bullish impulse.
Cup — a smooth correction forming a rounded bottom (about 1/3–2/3 of the initial upward move’s depth).
Handle — a short correction after partial recovery (shallower than the cup’s right side).
Breakout — the price breaks the upper boundary of the handle and updates the local high.
Ideal Shape
Cup:
Depth: 1/3–2/3 of the first upward wave.
Bottom: rounded, without sharp drops.
Handle:
Short and shallow (up to 1/3 of the cup’s height).
Often forms as a small descending channel or flag.
How to Trade the Pattern
Entry Point:
At the breakout of the handle’s upper boundary (after a candle closes above it).
Stop-Loss:
Below the handle’s low (if price falls below it, the pattern loses validity).
Take-Profit:
Measure the cup’s depth and project it upward from the breakout point.
Reliability Rules
Forms after an uptrend.
Volume behavior:
Decreases during cup formation.
Increases during handle breakout.
Best signals: smooth cup and narrow handle.
Conclusion:
The Cup and Handle is a strong bullish pattern, especially when combined with volume confirmation. It helps traders time entries into an ongoing uptrend with well-defined risk and target levels.