The Cup and Handle chart pattern was developed and popularized by William J. O’Neil in the 1980s through his CANSLIM methodology, Investor’s Business Daily and his book “How to Make Money in Stocks.”
The Cup and Handle pattern resembles a cup with a handle.
Most of these patterns are very reliable and offer great trading opportunities.
The “cup” formation is developed as a consolidation phase during price rallies from the round bottom formation over multiple weeks to months.
The “handle” part forms due to a price correction after the cup formation and before a clear breakout to the upside.
The cup and handle pattern structure show the momentum pause after reaching a new high in a U-Shaped form, followed by another attempt to breakout. When this breakout from the rim of the cup fails it starts to fall back to build the “handle” structure. Usually, the handle structures are small, and the handle depth should not exceed more than 50% of cup depth.
This handle part of the pattern generates interest in buyers as they expect the pattern to breakout from these levels.
Key pattern characteristics
Cup shape: The cup formation should be “U- shaped”
Cup depth: Cup should retrace at least 25% of cup depth but may not be more than 50% of cup depth.
Handle: Handle resembles a flag formation in a pullback fashion. Breadth (width) of a handle is usually small, and it can be 25% to 40% of a cup’s width.
Duration: Cup and handle patterns must have extended breadth (two to 12 weeks).
How to trade
Entry: Cup and handle patterns present great bullish trading opportunities. When the pattern breaks out above the rim of the cup, a “long” trade is entered above the high of the breakout bar.
Stop: A stop should be placed below the middle of the handle level.
Targets: Targets are placed at 62% and 127% of the height of the cup above breakout level.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.