Stock Pattern Cup And Handle

william o’neil

ad headlines for online marketing and Handle Pattern is often considered a bullish signal, with the handle usually experiencing lower trading volume. However, there is also the other side of this pattern, the reverse cup and handle, which represents a bearish trade. The cup and handle indicator has been used by traders to determine the direction in which an asset/stock may move. It also defines the entry point, stop-loss, and target placement guidelines. Inverted cup and handle patterns are also possible during downtrends and signal bearish continuations.

price moves

  • The price action begins by making a gradual bearish move.
  • A few key factors contribute to forming a cup and handle pattern.
  • First buy entry on the Handle breakout, the upper line that defines the Handle structure is our trigger line of the first buy order.

The cup also should be relatively shallow – it should retrace only one-third to one-half of the prior uptrend. The handle can vary more in shape, but the downtrend should not retrace more than one-third of the gains at the end of the cup. In addition, a shorter and less severe downtrend during the handle is a good indicator that the breakout will be extremely bullish.

When you layer the volume on top of the price action, they both can look like two Us on the chart. If you have limited time, create your process around that. You can easily limit scanning, and the analysis, to about 20 minutes an evening. Scan through the top of the list—a certain number of stocks—or scan for 10 minutes.

This move did not last for long before reversing into a bearish direction. It should be applied downwards right from the moment of the breakout. You can also see that the two targets have been applied from the moment of the breakout. The size of the second target should be equal to the size of the cup. The size of the first target should be equal to the size of the handle.

The stock had just dropped significantly to a new swing low, and had just started to turn higher. Most stocks that make a new swing low, don’t make massive leaps right after. If it’s almost ready to pop, I keep it on a notepad in front of me and also add the stock to my chart windows that are always open on my computer. That way I can watch it every day to see if it sets up fully. Once I have assessed the stocks, many will get crossed off the list. I then compare them to each other, and to the type of setups that have been occurring lately.

The cup and handle pattern resembles a U shape with a horizontal line, generally drifting downward, like a teacup. And you gotta check out our brand-new Breaking News chat feature. See how two skilled stock market pros can help you find the news with the most potential to move stocks. Here’s where you can learn more and start a 14-day trial TODAY. Even if you don’t plan on using it, it’s popular with a lot of traders.

Chart Patterns: Cup With Handle

Check out this step-by-step guide to learn how to scan for the best momentum stocks every day with Scanz. Check out this step-by-step guide to learn how to find the best opportunities every single day. When evaluating whether a cup and handle pattern is real, it is important to look at the shapes of both the cup and the handle. If you’re day trading, and the target is not reached by the end of the day, close the position before the market closes for the day.

flat base

Like many big-buzz IPO stocks, Meta Platforms, then known as Facebook, got off to a rocky start following its May 2012 market debut. But the social media giant bolted out of a double bottom in July 2013 as its earnings growth rebounded. In the chart below, note the huge spikes in volume as Meta launched what eventually became a nearly 600% move over the next five years. Remember, the handle usually begins with a down day in price, and can morph into a base of its own in certain cases. That’s not a problem; it’s often a stock’s way of offering a buy point that’s clearer or lower than that suggested by the larger pattern. During bear markets, some good cup-with-handle bases show a large decline within the handle.

What is Cup and Handle?

The stop-loss order should be set above $99, since that is the halfway point of the cup. When a stop-loss is below the halfway point, it is better to reject such trades. A stop-loss order saves traders if the price drops, even after a stock forms the cup and handle chart. The stop-loss will sell off the stocks as soon as the price goes down to a specific price set on the handle.

In this case, look for a strong trend heading into the cup and handle. For additional confirmation, look for the bottom of the cup to align with a longer-term support level, such as a rising ​trendline or moving average. A stop-loss order gets a trader out of a trade if the price drops, instead of rallying, after buying a breakout from the cup and handle formation.

Typically, cup and handle patterns fall between seven weeks to over a year. To use the cup-and-handle pattern successfully, investors must wait for the handle to form. In other words, trading off this pattern requires patience and a rational approach to the market – something that is a challengefor many investors. Once a stock has completed its recovery and begun to stabilize or turn down slightly, the pattern is almost complete.

Hard to predict when good overnight news is going to jump a stock 150% in a day. It will work ok, list of stocks will be just a bit bigger. If the list is really big, I will increase the criteria to reduce the number of stocks on the list. A trailing stop-lossmay also be used to get out of a position that moves close to the target but then starts to drop again. Traders use this indicator to find opportunities to buy securities with the expectation that their price will increase. And there’s another great thing about this pattern — it can be pretty easy to recognize once you become familiar with it.

What Is the Cup and Handle Pattern?

While the cup and handle pattern can be useful as an indicator, there is no guarantee that stock prices will rise. If you’re looking for a trading platform, check out StocksToTrade. Traders of all levels will love our charts, built-in scans, watchlist capabilities, and so much more. After they exit, the stock can consolidate to form the base until it runs again.

In the second part of this series on how to, we learned about support and resistance. The bottom of the cup with handle is an area of support , and the peak in the handle is the most recent point of resistance . Technical indicators work better when used in conjunction with other signals and patterns. In particular cup and handle patterns, various limitations have come up over the years that have been discovered by traders and investors.


This bullish price move created the handle of the pattern. You should also set targets for this type of formation. The formation of the handle also begins immediately after the formation of the cup. The second target is equal to the size of the cup beginning from the moment of the breakout.

Any active trading strategy will result in higher trading costs than a strategy that involves fewer transactions. The double bottom is another pattern that repeats in every market cycle. Not surprisingly, double bottoms typically form when the stock market indexes are showing similar volatility. The strength and the longevity of the prevailing trend is important as it will determine the success of the trade.

This pattern can occur both in small time frames, like a one-minute chart, as well as in larger time frames, like daily, weekly, and monthly charts. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealeror an investment adviser. That’s why we designed StocksToTrade to have such incredible, easy-to-customize charts. You can add in lines for support or resistance, use technical indicators, easily export to review later, and so much more. The inverted cup and handle is the opposite of the pattern I just broke down.

What if there was another way to set your target, which can account for the specific pattern you are trading? To simply apply the same price target logic to every stock formation in the market sounds a bit off, when you think about it. Whatever the height of the cup is, add it to the breakout point of the handle. For example, if the cup forms between $100 and $99 and the breakout point is $100, the target is $101.

The traits to look for to find high quality stock trades

Yep, this is a bullish pattern and can be a technical indicator for traders of a potential upcoming breakout. ✅This pattern is not as popular among traders as “Head and Shoulders”, “Double Top” and other classic patterns of technical analysis. However, this does not mean that it is not so effective.

The subsequent decline ended within two points of theinitial public offering price, far exceeding O’Neil’s requirement for a shallow cup high in the prior trend. The subsequent recovery wave reached the prior high in 2011, nearly 10 years after the first print. For a bearish pattern, place your stop loss order above the highest point of the handle.

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