A cup and handle price pattern are a technical signal that looks like a cup with a handle, with the cup shaped like a “u” and the handle having a small downward drift on a security’s price chart.
The cup and handle pattern are regarded as a bullish signal, and lesser trade volume is frequently seen on the right side of the formation. The time it takes for the pattern to form might range from seven weeks to 65 weeks.
Investors who previously acquired the stock at those levels are likely to apply selling pressure when it tests its old highs, which will cause the price to consolidate with a bias toward a downward trend for a period of four days to four weeks before moving higher.
A cup and handle are used to spot purchasing opportunities and is regarded as a bullish continuation pattern.
When identifying cup and handle patterns, the following factors should be considered:
- Length: Typically, cups with longer, more “U”-shaped bottoms transmit signals more effectively. We must not use cups with pointed “V” bottoms.
- Depth: The cup shouldn’t be excessively deep. As handles should form in the top half of the cup design, avoid handles that are too deep.
- Volume: Volume should increase when the stock starts to move higher, back up to test the previous high, and then should reduce when prices decline and remain lower than normal in the base of the bowl.