Cup and Handle Pattern

Cup and Handle Pattern

The Cup and Handle pattern is a technical chart pattern that resembles the shape of a cup with a handle. It is typically used in Stock trading and is considered a Bullish continuation pattern. The pattern consists of two main parts: the ‘cup,’ which is formed after a price decline and a consolidation period, and the ‘handle,’ which represents a slight pullback before the price breakout.

Formation

  • Cup: The cup shape is created when the price first declines, then gradually rises to form a rounded bottom.
  • Handle: After the cup is formed, the price experiences a short-term decline (the handle) before breaking out upward.

Example

Suppose a Stock’s price drops from $50 to $30, then rises back to $50, creating the cup shape. After a brief pullback to $45, the price breaks out to $55, confirming the pattern.

Case Studies

  • Case 1: In 2020, Stock A formed a Cup and Handle pattern over several months, eventually breaking out to a new high after the handle formation.
  • Case 2: Stock B, however, showed a false breakout after the handle, leading to a price decline instead of the expected upward movement.