Cup and Handle

The Cup and Handle, also known as Cup with Handle, is a time-tested classic bullish continuation pattern.  It was developed by William O'Neil and introduced in his 1988 book, How to Make Money in Stocks.

Cup and Handle

The Cup and Handle, also known as Cup with Handle, is a time-tested classic bullish continuation pattern.  It was developed by William O'Neil and introduced in his 1988 book, How to Make Money in Stocks.


Cup and Handle Identification

 As the name implies, the stock price pattern resembles a cup in the shape of a "U" with a handle (trading range) that has a slight downward slant.

Volume reduces on the decline and remains low in the base of the bowl. The volume should increase when the stock finally moves back up and approaches the old high. The Cup and Handle pattern can last anywhere from 1 month to well over 1 year.

Stock chart showing classic Cup and Handle technical analysis pattern

Cup and Handle Interpretation

It's important that an upward trend occur prior to the cup and handle. However, the larger the upward trend is, the lower the probability of large breakout after the pattern has completed. The reason being that much of the price run-up occurred prior to the formation of the cup, weakening the potential upward move.  Cups with longer and more "U" shaped bottoms typically have the strongest signals.  Sharp "V" bottoms are not desirable. Ideally, the cup should not be too deep. 

Handles should form in the top third of the cup pattern. The top of the handle doesn't have to touch the old high.  However, the further the top of the handle is away from the highs, the larger the breakout needs to be.  The handle slants downward after the upward move on the right side of the cup.  A descending trendline can be drawn during this downward move.  When the stock price rises above the descending trendline the stage is set for the expected breakout. Volume should contract as the handle forms and then there should be a substantial increase on the breakout.  The advance after breakout can be projected by measuring the distance from the right peak of the cup to the bottom of the cup. 

Technical traders typically go long at the breakout from the handle pattern with a stop below the most recent low in the handle pattern.

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