Cup and Handle


DEFINITION of 'Cup and Handle'

A pattern on bar charts resembling a cup with a handle. The cup is in the shape of a "U" and the handle has a slight downward drift. The right-hand side of the pattern has low trading volume. It can be as short as seven weeks and as long as 65 weeks.

As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks... then it takes off. Below is an example of a cup and handle chart pattern:

Cup and Handle

BREAKING DOWN 'Cup and Handle'

A couple points on trying to detect cup and handles: Length - Generally, cups with longer and more "U" shaped bottoms, the stronger the signal. Avoid cups with a sharp "V" bottoms. Depth - Ideally, the cup should not be too deep. Also, avoid handles which are too deep since the handles should form in the top half of the cup pattern. Volume - Volume should dry up on the decline and remain lower than average in the base of the bowl. It should then increase when the stock finally starts to make its move back up to test the old high. Retest (of old high) - doesn't have touch or come within a few ticks of old high. However, the further the top of the handle is away from the highs, the more significant the breakout needs to be.

  1. Rectangles

    A technical trading pattern in which a security's value ranges ...
  2. Hockey Stick Chart

    A line chart in which a sharp increase or decrease occurs over ...
  3. Volume

    The number of shares or contracts traded in a security or an ...
  4. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  5. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  6. Rounding Bottom

    A chart pattern used in technical analysis, which is identified ...
Related Articles
  1. Options & Futures

    Backspreads: Good News For Breakout Traders

    This bullish trading strategy offers unlimited potential profit with limited risk.
  2. Chart Advisor

    These Oil & Gas Stocks Have Reversed

    It's been a long downtrend for oil stock owners, but there's hope. These four oil and gas stocks have reversed and may keep trending to the upside.
  3. Chart Advisor

    4 European Stocks to Consider Buying

    European companies, listed on US exchanges, that are providing buying opportunities right now.
  4. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  5. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  6. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  7. Chart Advisor

    Expecting a Big Breakout In These 4 Stocks

    These stocks are tightly wound following big moves, and upon breakout more big moves could ensue.
  8. Chart Advisor

    Trade Base Metals With These 3 ETFs

    News out of Alcoa is causing active traders to turn toward base metals for opportunities. Before diving into the market, check out the charts of these three ETFs.
  9. Charts & Patterns

    The Importance Of Tracking The Whisper Number

    Don't let the name fool you: Whisper numbers are making themselves heard. Here's why you should be paying attention.
  10. Chart Advisor

    Stocks With Buy Signals in a Bear Market

    The short-term trend may be down, but these stocks are showing strength to the upside.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!