A cup and handle forms when price rounds gradually downward and back up (the cup), then consolidates in a shallow downward drift near the prior high (the handle) before breaking out above the cup's rim. Unlike head and shoulders or double tops, it's a continuation pattern — it typically appears within an existing uptrend, signalling a pause before the trend resumes.
Why it matters
- —The rounded shape of the cup reflects a gradual shift from selling pressure to accumulation — a smoother, more gradual base than a sharp V-shaped bottom.
- —The handle acts as a final shakeout of weak holders before the breakout, which is why entries are typically taken on the breakout above the cup's rim, not during the handle itself.
- —Volume should expand on the breakout above the rim; a breakout on thin volume is less reliable.
How to read it
| Cup forming, rounded base | Pattern developing — wait for the handle |
| Handle: shallow pullback near the rim | Final consolidation before a potential breakout |
| Breakout above the rim on volume | Pattern confirmed — continuation likely |