What Is a Cup and Handle Pattern? Cup and Handle Pattern Target

A cup and handle pattern is a technical signal on a price chart. It looks like a cup with a handle, the cup is shaped like a "u" and the handle dips slightly downward.

The cup and handle is seen as a bullish signal. Typically, the right-hand side of the pattern has lower trading volume. Depending on market conditions, this pattern can form in as little as seven weeks or as long as 65 weeks to develop.

The pattern was developed by William O'Neil in 1988. It is called a cup and handle because its shape looks like a teacup.

Components of Cup and Handle Pattern:

It consist of two parts:

(a) A cup - A cup formation happens during an uptrend when prices pull back and then followed by a consolidation phase, making a rounded bottom which looks like a cup. After this period, the prices reverse and continue to move the uptrend. Usually, the patterns form equal highs at the corner of the cup with the intermediate price ranges in the middle acting support. The pattern usually forms a 'U' shaped or rounded bottom. The duration of this formation of a cup is usually from one month to a few months. For the pattern considered reliable, the depth of the cup should be less than half percentage of the preceding trend. In other words, the 'U' or round shape is reliable and the pattern is seen to be.

(b) After the right side of the cup forms, the price pulls back a bit before continuing its upward trend, which is known as the handle of this pattern. This handle develops on the right hand side of the cup and typically takes anywhere from 1 week to several weeks to form. For the pattern to be considered reliable, the handle should form in the top half of the cup formed as shown in the diagram.

Some Important Characteristics of Cup and Handle Pattern: 

1. Trend: The Cup and Handle Pattern is only seen as a continuation pattern, if there was already a trend in place before it formed this pattern.
2. Duration: The Cup and Handle Pattern is seen as a long term continuation pattern. It takes one to several months to form the cup, and then handle forms over a period of about 1 week to several weeks.
3. Breakout: A breakout is very important for confirmation of this pattern. It happens with high trading volumes, which shows that the previous trend has resumed.
4. Volume: As the pattern develops, trading volume decreases. Then, when the price breaks above the handle's resistance, the Volume plays an important role in confirming the patterns.
5. Price Target: After a breakout, you can roughly set a price target by measuring the distance from the right peak of the cup to the bottom of the cup, however, it's important to also consider other indicators such as MACD, RSI, and many more.

How can Find Cup and Handle Pattern?

Imagine a stock has recently reached a high with strong momentum but then dropped almost 50%. At this point, an investor might buy it, expecting it to bounce back to its earlier high. The stock bounces back, testing the previous high resistance levels, then settles into a sideways trend. Finally, it breaks through that resistance and climbs to a level, soaring 50% higher than the previous high.

Steps Taken while considering Cup And Handle Chart Pattern

• Relaying on just one Chart Pattern can sometimes give false signals and be risky. It's better to also check other tools such as Volume, RSI for confirmation.

• Always use a stop loss, it's the best way to protect your money by keeping losses low and helping you to minimize your losses.

What Does a Cup and Handle Pattern Tell You?

American technician William J. O'Neil first introduced the cup and handle (C&H) pattern in his 1988 book, How to Make Money in Stocks. He later refined the pattern by adding technical details through a series of articles published in Investor’s Business Daily. O'Neil provided specific time frame guidelines for each part of the pattern, and offered a detailed description of the rounded lows that create the pattern's unique teacup look.

When a stock forming this pattern tests its previous high levels, investors who bought at those levels may start selling. This selling makes the price consolidate with a tendency toward a downward trend for a period of four days to four weeks before it rises again. The cup and handle pattern is seen as a bullish continuation pattern and is used to spot good times to buy.

Disclaimer:

• The information is based on our understanding of the stock's historical performance.
• Stock market predictions are unpredictable and can change, so expert advice is strongly recommended before investing.
• The values provided are based on predictions and may not be accurate, we recommend verifying the information with other sources.
• For further inquiries about the stock market, please contact us via email.

Explore the Share Price Forcast:-