How To Trade the Cup and Handle Chart Pattern

Suited man with a teacup in hand, talking on cellphone, sitting before his laptop
Petar Chernaev / Getty Images.

A cup and handle pattern is a technical analysis indicator that occurs when the price chart for an asset resembles a U-shape with a horizontal line, generally drifting downward, like a teacup. It is a bullish continuation pattern which means that it is usually indicative of an increase in price once the pattern is complete. Successful trades using the cup and handle chart pattern require correctly identifying the pattern, buying the asset at logical entry point, setting a stop-loss for managing risk, and coming up price target for exiting a profitable trade.

Key Takeaways

  • The cup and handle pattern resembles a U shape with a horizontal line, generally drifting downward, like a teacup.
  • The cup and handle pattern is a bullish pattern, meaning once the pattern is over there are chances for the stock price to increase.
  • The cup and handle pattern can take weeks or months to form.
  • Traders use this indicator to find opportunities to buy securities with the expectation that their price will increase.
  • While the cup and handle pattern can be useful as an indicator, there is no guarantee that stock prices will rise. Use a stop-loss to manage your risk.

What Is a Cup and Handle Pattern?

Cup and Handle 2

Chart patterns, like a triangle, rectangle, head and shoulders, or—in this case—a cup and handle are a visual way to trade. The cup and handle pattern, also sometimes known as the cup with handle pattern was first identified by stockbroker William O'Neil in 1988.

The cup and handle pattern occurs when the price of an asset trends downward, followed by a stabilizing period. Prices then rise to an approximately equal size to the prior decline. It creates a U-shape or the "cup" in the "cup and handle." The price then moves sideways or drifts downward within a small price range, forming the handle.


The handle needs to be smaller than the cup. That means the asset's price, which is trending lower to form the handle, should not drop to level of the lower half of the cup. Ideally, the price should stay within the top 1/3rd of the height of the cup.

For example, if a cup forms between $99 and $100, the handle should form between $100 and $99.50, ideally between $100 and $99.65. If the handle dives too deep and erases most of the gains of the cup, you should avoid trading the pattern.

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.

A cup and handle chart usually signals a bullish continuation pattern. A continuation pattern occurs during an uptrend; the price rises, forms a cup and handle, and then continues rising. In some cases, the pattern may indicate a reversal when the price is in a long-term downtrend. It then forms a cup and handle that reverses the trend, and the price starts rising.

Entering a Cup and Handle Trade

Cup and handle breakout

You've identified a cup and handle pattern, but before you jump into the trade, you must wait for a handle to form completely. The handle often takes the form of a sideways or descending channel or a triangle pattern. When the price breaks out of the handle, the pattern is considered complete, and the price is expected to rise.

So, when a good time to buy? The answer is in the chart. A good time to buy is when the price of the asset moves up and exceeds the price levels seen previously at the top of the right side of the cup.

In addition to the price levels, some traders also look at trade volume in the asset before entering a trade after a cup and handle pattern. Higher volume indicated that more investors are buying that asset, and higher demand could lead to higher prices in the near future.


While the price is expected to rise after a cup and handle pattern, there is no guarantee. The price could increase slightly and then fall; it could move sideways or fall right after entry. You need a stop-loss to manage your risk.

Protect Your Trade With a Stop-Loss

Cup and handle, breakout, stop loss

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. The stop-loss controls risk on the trade by selling the position if the price declines enough to invalidate the pattern.

Place a stop-loss below the lowest point of the handle. If the price oscillated up and down several times within the handle, a stop-loss might also be placed below the most recent swing low.

Since the handle must occur within the upper half of the cup, a properly placed stop-loss should not end up in the lower half of the cup formation. For example, suppose a cup forms between $50 and $49.50. The stop-loss should be above $49.75 because that is the halfway point of the cup.


If the stop-loss is below the halfway point of the cup, avoid the trade. Ideally, it should be in the upper third of the cup pattern.

By having the handle and stop-loss in the upper third (or upper half) of the cup, the stop-loss stays closer to the entry point, which helps improve the risk-reward ratio of the trade. The stop-loss represents the risk portion of the trade, while the target represents the reward portion.

Picking a Target Price or Profitable Exit

Cup and handle target range

Whatever the height of the cup is, add it to the breakout point of the handle. That figure is the price target. For example, if the cup forms between $100 and $99 and the breakout point is $100, the target is $101.

A conservative price target can be achieved by measuring the height of the handle and adding it above the resistance level at the top right-side of the cup. Sometimes, the left side of the cup is a different height than the right. Use the smaller height and add it to the breakout point for a conservative target. You could also use the larger height for an aggressive target.


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.

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.

Other Important Considerations

Traditionally, the cup has a pause, or stabilizing period, at the bottom of the cup, where the price moves sideways or forms a rounded bottom. It shows the price found a support level and couldn't drop below it. It helps improve the odds of the price moving higher after the breakout.

A V-bottom, where the price drops and then sharply rallies, may also form a cup. Some traders like these types of cups, while others avoid them. Those that like them see the V-bottom as a sharp reversal of the downtrend, which shows buyers stepped in aggressively on the right side of the pattern.


Opponents of the V-bottom argue that prices don't stabilize before bottoming and believe the price may drop back to test that level. But, ultimately, if the price breaks above the handle, it signals an upside move.

If the trend is up and the cup and handle form in the middle of that trend, the buy signal has the added benefit of the overall trend. 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.

If the cup and handle form after a downtrend, it could signal a reversal of the trend. To improve the odds of the pattern resulting in an actual reversal, look for the downside price waves to get smaller heading into the cup and handle. The smaller down waves heading into the cup and handle provide evidence that selling is tapering off, which improves the odds of an upside move if the price breaks above the handle.

Another related technical analysis indicator to keep in mind is an inverted cup and handle pattern. Some traders consider that pattern a harbinger of a downtrend in the asset's price that helps identifying selling opportunities. On the charts it looks like an upside down cup with the price of an asset on a downward trajectory moving up, stabilizing and then moving down again, followed by a handle pointing upwards. Most of the same general rules, such as the handle not exceeding 1/3rd of the cup, still apply. The price of the asset is expected to drop after the pattern formation is complete.

Frequently Asked Questions (FAQs)

What happens after a cup and handle pattern??

If a cup and handle pattern is confirmed, it will usually be followed by a bullish price move upward. You can pick a price target based on the size of the cup, but it becomes much less clear what will happen after the initial breakout from the cup and handle pattern. For a better idea of what will happen after the cup and handle, zoom out and take a look at a larger time frame. Is there a longer-term uptrend or downtrend? Has the volatility been increasing or decreasing? These sorts of larger contextual clues can help if you plan on holding positions beyond the initial breakout.

How do you scan for a cup and handle pattern?

There isn't a stock scanner setting you can use to find a cup and handle pattern, but the pattern is easy to recognize visually. If you set your stock scanner to meet your other trading needs, then you can flip through the results until you find a chart that looks like a cup and handle. For example, a day trader may scan for stocks with a high average true range (ATR), and a swing trader might search for stocks that have performed well in recent weeks.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. William J. O'Neil. "How to Make Money in Stocks: A Winning System in Good Times and Bad," 4th Edition. The McGraw-Hill Companies, 2009.

  2. IG. "Cup and Handle Chart Pattern Explained."

  3. Fidelity Investments. "Cup With Handle."

  4. Youtube, TD Ameritrade. "Technical Analysis—How to Use Cup and Handle Price Patterns."

  5. U.S. Securities and Exchange Commission. "Investor Alerts and Bulletins Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders."

  6. CMC Markets. "Cup and handle pattern."

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