Cup and handle

What it is

A cup and handle is a bullish continuation pattern. Price makes a gradual, rounded U-shaped decline and recovery back to its prior high — the cup. It then pulls back slightly in a small handle before breaking above the rim, the resistance at the top of the cup.

Why it forms

The left side of the cup is profit-taking and selling after an uptrend. The rounded bottom is a slow period where sellers run out and buyers accumulate. The right side is demand returning. When price reaches the old high, holders who bought there near the top can sell at break-even, which causes the handle’s small pullback.

Once that supply is absorbed, a close above the rim clears the last obstacle.

How to identify it

• A prior uptrend.
• A rounded, U-shaped cup — not a sharp V.
• Both sides of the cup reaching roughly the same high (the rim).
• A handle that is short and shallow, staying in the upper part of the cup.
• Volume often lower at the bottom of the cup and higher on the breakout.

What confirms it

A candle close above the rim, ideally with rising volume.

What invalidates it

• The handle falls deep into the cup — especially below its midpoint.
• Price closes back under the handle low after a failed break.

Common mistakes

• Accepting a V as a cup. A V-shaped recovery lacks the base that gives the pattern meaning.
• A handle that is too deep or too long. It should be a brief, shallow pause.
• Buying the handle. The rim break is the signal.
• Treating the cup depth as a target. It is a reference for scale only.