The cup and handle is a well-known continuation pattern that signals a pause before a potential breakout higher. It's a favourite of stock and crypto traders for its clear, intuitive shape.
What it looks like
- The cup — a rounded "U" shape: price declines, bottoms out gently, then recovers to near the prior high. The rounded base (not a sharp "V") shows a gradual shift from selling to buying.
- The handle — a small pullback or sideways drift near the top, on the right side of the cup. It shakes out weak hands before the move.
The pattern completes when price breaks above the handle's resistance, often with rising volume.
Why it works
The rounded cup reflects accumulating demand; the handle is a final, shallow consolidation. A breakout suggests buyers have absorbed the supply and are ready to push higher.
How to trade it
- Wait for the breakout above the handle — anticipating it is guessing.
- Confirm with volume — a breakout on thin volume often fails (a trap).
- Target — project the cup's depth from the breakout point for a rough objective.
- Stop — below the handle low, where the pattern is invalidated.
The caveat
Patterns are clearest in hindsight and they fail. Demand a clean break, use support/resistance context, and define risk with the risk/reward calculator.
The cup is accumulation; the handle is the last shakeout. The breakout is where the thesis gets tested.
Education only — not financial advice.