Cup and Handle
Chart PatternsA bullish continuation pattern resembling a teacup: a rounded bottom (cup) followed by a small downward drift (handle). The breakout above the cup's rim confirms the pattern.
What Is a Cup and Handle?
The cup and handle is a bullish continuation pattern that forms during an Uptrend. The "cup" is a rounded, U-shaped decline and recovery that brings the price back to roughly the level where the decline began. The "handle" is a smaller pullback from the right side of the cup, typically drifting slightly lower or sideways.
The cup shows that a selloff was fully absorbed by buyers who gradually pushed price back to the starting level. The handle represents final profit-taking before the next leg up.
How to Trade It
Enter long when price breaks above the resistance level at the top of the cup (the "rim"). On GBP/USD, place a stop below the handle's low. The target is the depth of the cup projected upward from the breakout point.
The handle should retrace no more than one-third to one-half of the cup's depth. A handle that drops too deep suggests the bullish thesis may be failing.
Pattern Quality
The best cup and handle patterns have a smooth, rounded cup bottom rather than a sharp V-shape. The V-shape suggests a quick snapback rather than a gradual shift in sentiment. The handle should drift down gently with decreasing volume, showing quiet consolidation. The pattern is more common on daily and weekly charts and can take weeks to months to form. In forex, it appears frequently on major pairs during sustained trending periods.
Related Terms
Double Bottom
A bullish reversal pattern where the price reaches the same low twice with a bounce in between, forming a "W" shape. The break above the middle peak confirms the reversal.
Ascending Triangle
A bullish continuation pattern with a flat resistance line and a rising trendline connecting higher lows. Price typically breaks upward through the flat resistance.