What is the Cup and Handle Pattern?

What is the Cup and Handle Pattern?

A cup and handle is a bullish continuation pattern where price forms a rounded bottom (the cup) followed by a shallow pullback (the handle) before breaking higher.

Identifying the Pattern

• Cup formation: Rounded decline and recovery to prior resistance.
• Handle pullback: Light retracement that forms a small descending channel or flag.
• Breakout: Close above cup resistance on increased volume.
• Target projection: Depth of the cup added to the breakout level.

Trading the Cup and Handle

• Entry: Buy the breakout or anticipate inside the handle with tight stops.
• Stop placement: Below handle support or the midpoint of the cup.
• Profit targets: Use measured moves and trailing stops to capture extensions.
• Context matters: Confirm that the broader trend is bullish.

Practical Playbook

• Define context on higher timeframes, then execute on intraday charts.
• Wait for confirmation (acceptance, momentum, or confluence) before entry.
• Size positions conservatively and place stops at clear invalidation levels.
• Adapt to session dynamics; conditions shift between Asia, London, and New York.

Common Pitfalls

• Forcing trades without alignment across timeframe, structure, and catalyst.
• Ignoring spreads/slippage during news or thin liquidity.
• Moving stops or adding to losers instead of honoring the plan.

Illustrative Example

Build a simple playbook: identify bias, mark key zones/levels, define triggers and invalidation, and pre‑set targets for 2–3R. Journal results by session and setup to refine rules. Over time, consistency—not prediction—drives outcomes.

Practical Playbook

• Define context on higher timeframes, then execute on intraday charts.
• Wait for confirmation (acceptance, momentum, or confluence) before entry.
• Size positions conservatively and place stops at clear invalidation levels.
• Adapt to session dynamics; conditions shift between Asia, London, and New York.

Common Pitfalls

• Forcing trades without alignment across timeframe, structure, and catalyst.
• Ignoring spreads/slippage during news or thin liquidity.
• Moving stops or adding to losers instead of honoring the plan.

Illustrative Example

Build a simple playbook: identify bias, mark key zones/levels, define triggers and invalidation, and pre‑set targets for 2–3R. Journal results by session and setup to refine rules. Over time, consistency—not prediction—drives outcomes.