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A cup and handle pattern on a bar chart shows a trend in upward performance that trades down and pauses before resuming its upward direction.

It starts when a stock’s value peaks. The stock incurs selling pressure and descends to about a third of its initial high point. The stock then trades near flat levels for a time, forming the U-shaped bottom of the cup. A V-shaped bottom indicates the stock reached a low point then quickly recovered.

The stock eventually ascends smoothly to a point that nearly matches its previous high, then continues to form the handle.

Handles usually last less than a month. They can be in a straight line or descend up to a third of the gain from the cup’s right side. A move up usually means the stock’s upward trend will resume.

Trading volume dries up on the decline, remains low in the base of the cup and increases as the stock ascends. Strong volume is a clear sign that the upward trend will continue.

A cup and handle pattern may take anywhere from 7 to 65 weeks to develop, but the form is always the same. The pattern has historically preceded large gains in many stocks.

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