Cup and Handle Pattern
A rounded base (the cup) followed by a shallow pullback (the handle), then a breakout to new highs. A William O'Neil classic.
Trading rules at a glance
- Entry
- Long on close above the rim resistance.
- Stop Loss
- Below the handle low.
- Target
- Cup depth projected upward from the breakout point.
How the Cup and Handle forms
Price declines, rounds out, and recovers to form a U-shaped cup. A shallow pullback from the right side of the cup creates the handle. The pattern completes when price breaks above the cup's rim.
How to trade it
- Look for U-shaped recoveries, not V-shaped ones.
- The cup should take multiple weeks on the daily chart.
- The handle should retrace less than 50% of the cup depth.
- Enter on the breakout above the rim with rising volume.
Common mistakes to avoid
- Trading shallow or misshapen cups.
- Ignoring volume — volume should dry up in the handle and surge on the breakout.
- Entering before the rim breaks.
Real-world example
Apple (AAPL) formed a textbook cup and handle between March and July 2020 before breaking out in August and rallying through year end.
Best timeframes
The Cup and Handle works best on Daily, Weekly charts. It can appear on lower timeframes but signal reliability drops significantly below the 1-hour chart.
Related patterns
Ascending Triangle
A flat resistance with rising support below. Typically breaks upward in an existing uptrend.
Descending Triangle
Flat support with falling resistance above. Usually breaks downward in a prevailing downtrend.
Bull Flag
A sharp rally (the pole) followed by a tight, downward-sloping consolidation (the flag). Breaks higher to continue the rally.
Bear Flag
Mirror image of a bull flag. Sharp decline (pole) followed by an upward-sloping consolidation (flag). Breaks downward.