Overlay Description William O'Neil's Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. There are two parts to the pattern: the cup and the handle.
The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.
How this indicator works The cup should resemble a bowl or rounding bottom. The perfect pattern would have equal bowl with handle trading on both sides of the cup, but this is not always the case. After the high forms on the right side of the cup, there is a pullback that forms the handle.
The cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over weeks.
A cup and handle price pattern on a security's price chart is a technical indicator that resembles a cup with a handle, where the cup is in the shape of a "u" and the handle has a slight downward drift. The cup and handle is considered a bullish signal, with the right-hand side of the pattern typically experiencing lower trading volume. Key Takeaways A cup and handle is a technical chart pattern that resembles a cup and handle where the cup is in the shape of a "u" and the handle has a slight downward drift. A cup and handle is considered a bowl with handle trading signal extending an uptrend, and is used to spot opportunities to go long. Technical traders using this indicator should place a stop buy order slightly above the upper trendline of the handle part of the pattern.
The buy point occurs when the stock breaks out or moves upward through the old point of resistance right side of the cup. This breakout should occur with increased volume.
The price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point. This should be used only as a guideline.
Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most comfortable with.
How to Use Cup and Handle Price Patterns
As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. Past performance is no guarantee of future results.