Cup and Handle

AAA

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

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  5. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  6. Rounding Bottom

    A chart pattern used in technical analysis, which is identified ...
RELATED FAQS
  1. How does a swing trader use the stochastic oscillator?

    The stochastic oscillator is a momentum technical indicator used to indicate points of possible price reversals. Swing traders ... Read Full Answer >>
  2. How can I spot trading opportunities looking at year-to-date (YTD) performance?

    Trading opportunities on the long side can be spotted by looking at stocks with the worst year-to-date (YTD) performance, ... Read Full Answer >>
  3. How does Net Operating Profit After Tax give a clearer view of the operating efficiency ...

    Net operating profit after tax (NOPAT) gives a clearer view of the operating efficiency of a company. While NOPAT is a measure ... Read Full Answer >>
  4. Which is better: dollar cost averaging or value averaging?

    Historical comparisons seem to indicate that value averaging (VA) tends to outperform dollar cost averaging (DCA), offering ... Read Full Answer >>
  5. Why is the Nasdaq more volatile than the NYSE?

    The Nasdaq exchange does tend to regularly evidence more volatility than its major competitor, the New York Stock Exchange ... Read Full Answer >>
  6. How can I use Bollinger Bands® to spot options trading opportunities?

    Traders can use Bollinger Bands in a couple of different types of trading strategies. The most common strategy is using Bollinger ... Read Full Answer >>
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

    3 ETFs Poised For A Move Higher

    In this article we'll take a look at three ETFs that are positioning for a move higher. Nearby support levels are providing traders with ideal risk/reward.
  3. Charts & Patterns

    Target Vs. Walmart: Who's Winning The Big Box War?

    Wal-Mart dwarfs Target in number of stores, total assets, and market cap. But which company is more profitable?
  4. Trading Strategies

    Making Money The Wyckoff Way

    Richard Wyckoff established key principles on tops, bottoms, and trends in the early decades of the 20th century.
  5. Options & Futures

    Interpreting Overnight Action In The Index Futures

    Overnight action in index futures sets the tone for the U.S. market day. Traders can use 24-hour index futures charts to predict action in the coming day.
  6. Investing Basics

    Know When To Buy & Hold It, Know When To Fold It

    A passive buy-and-hold strategy using ETFs is one of the most efficient ways of building a portfolio.
  7. Charts & Patterns

    Pros & Cons Of A Passive Buy And Hold Strategy

    Forget market timing: we look at the pros and cons of the tried, tested, and true strategy of buying and holding stocks for the long-term.
  8. Trading Strategies

    Strategies For Playing The Confirmation Trade

    Trends often escalate when the confirmation process is completed after a breakout or breakdown.
  9. Trading Strategies

    Three Types Of Profit Protection Stops

    Three types of profit protection stops lock in profits at different stages in the progression of a successful trade.
  10. Fundamental Analysis

    Trading With Stage Analysis

    Stage analysis offers market participants a powerful tool to identify current market conditions and make rapid adjustments to strategies.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
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!