Chart pattern: Cup with handle
What is a cup with handle pattern?
The chart pattern, cup with handle, is a continuation pattern formed by two rounded troughs, the first being deeper and wider than the second.
The high points of the cup and the handle are aligned on the same horizontal resistance line. This line is called the neck line of the cup with handle pattern.
For the pattern to be valid, several rules must be respected:
- The cup with handle pattern must be preceded by a significant bullish movement.
- The cup’s lowest trough must be under 50% of the bullish movement that preceded the pattern’s formation.
- The handle's lowest trough must be under 50% of the cup’s height.
The shape of the two troughs can be reminiscent of a rounding bottom, which reflects the gradual exhaustion of sellers. Buyers gradually regain control once the neck line is crossed (psychological threshold), the buying force then becomes very strong.
The objective of the cup with handle pattern is calculated by plotting the height of the cup on the handle’s breaking point. However, it is more advisable to only plot half the cup’s height according to T. Bulkowki's studies.
Graphical representation of a cup with handle pattern
Statistics on cup with handle patterns
- In 79% of cases, the exit from a cup with handle pattern is bullish.
- In 73% of cases, the cup with handle pattern’s price objective is reached (half the cup’s height), after breaking the neck line.
- In 74% of cases, after exit, the price makes a pullback in support on the neck line.
Notes on cup with handle patterns
- The inventor of this pattern (J O Neil) tells us that the increased objective of this chart pattern is very high and that we must therefore carry the trade to benefit from the whole movement. Indeed, this pattern is a major continuation pattern with significant long-term bullish potential.
- If the cup has a lower left side than its right side (bullish neck line), the pattern’s performance is higher.
- It is advisable to wait for a pullback in support on the price line before considering opening a long position (when buying) after the formation of a cup with handle pattern.
- Pullbacks in support on the cup with handle pattern’s neck line are detrimental to performance.
For your information: A cup with handle pattern is a continuation chart pattern.