Cup and Handle

A rounded base, a rally back to the old high, a small pullback, and a breakout.

Teaching sketch. It shows the shape, not a live quote and not a trade signal.

Definition

A cup and handle is a bullish continuation, described by William O'Neil. The cup is a rounded decline and recovery back toward the prior high. The handle is a short, shallow pullback that does not retrace most of the cup. A close above the rim completes it.

How to identify it

A U shape, not a V. The right side of the cup returns to the left-side high. Then a brief drift, usually downward, in the upper part of the cup. Depth and time should look proportionate: a handle that falls to the bottom of the cup is a new decline.

Bullish reading

The trigger is the break of the handle high or the rim. Risk under the handle. The pattern is about a base that shook out sellers and then paused once more before leaving.

Bearish reading

A handle that breaks down through its own low, especially on heavy volume, fails the setup. The cup then has not held.

Common mistakes

Calling a sharp V bottom a cup, or buying a handle that has retraced the entire recovery.

Limitations

The full pattern takes a long time. On a five-minute chart the same shape is usually noise wearing a famous name.

This note explains the term. A sketch shows the shape of the idea. Neither is a recommendation, a signal, or a comment on any security. Indicator settings and exchange conventions differ. Check the live chart and the contract specification before you use a number.