Cup and Handle

Two parts: a rounded base and a pause under the rim The rim is the breakout level both lips of the cup share

A cup and handle has two parts: a rounded base (the cup) where price falls, drifts, and recovers, and a small pullback (the handle) right under the old high before the breakout.

The pattern is a continuation setup. It usually forms after a prior advance, pauses to digest that move as a rounded bowl, then resolves in the same direction it came from. The two lips of the cup sit at roughly the same price. That price is the rim. Because every chart-reader draws the same line there, orders pool at it, and that level drives the rest of the pattern.

The base is rounded because buyers absorb slowly Sellers exhaust, buyers absorb, and time passes

A real cup bottom is built by absorption: selling pressure fades gradually while patient buyers soak up supply. That takes time, and it prints as a slow curved bottom rather than a sharp V.

Watch the candles inside a good base. Ranges shrink, bodies get smaller, wicks poke both ways as price chops sideways near the lows. That is what exhaustion looks like: nobody is in a hurry to sell anymore, and buyers quietly step in on every dip. When demand finally overtakes the dwindling supply, price curls back up toward the rim. No single candle announces it, which is why the curve is smooth.

Three tests of a healthy cup Moderate depth, similar sides, and time spent in the base

Three tests separate a base worth trading from a random dip that recovered: depth, symmetry, and time. A cup should pass all three.

• Depth: a healthy cup is a moderate pullback, not a crater. A base that retraces almost the entire prior move is closer to a full trend reversal than a pause.
• Symmetry: the two sides should look similar. A clean bowl declines and recovers at comparable speed, with the low near the middle, not jammed against one edge.
• Time: accumulation needs room. A base that forms over many candles is more trustworthy than one carved in three or four.

The handle is a mini flag A shallow pullback under the rim that sweeps the first buyers

Price rarely breaks the rim on the first touch. It drifts down and sideways in a small, tidy pullback first: the handle. Read it exactly like a flag, just smaller.

The handle should be shallow relative to the cup, usually drifting down in the upper portion of the base rather than collapsing back toward the lows. It leans slightly against the direction of the coming break, which is why it so often points down before an upside resolution. When it is done, price reclaims the rim and goes.

Two entries: the rim break and the rim retest The retest offers a tighter stop and a cleaner invalidation

Two clean ways in: buy the break of the rim, or wait for price to come back and retest the rim as support. The retest usually offers a tighter stop and a cleaner invalidation.

1. Mark the rim across both lips of the cup as a zone, not a hair-thin line.
2. Let price break and close above the rim. A close beats an intrabar poke.
3. Wait for the retest: price pulls back into the old rim and holds it as support.
4. Enter on the reclaim, stop below the retest low (and below the handle), target the measured move.

Project the cup depth above the rim for the target Measured move = base-to-rim distance added to the rim

The cup gives you a built-in first target. Measure the depth from the bottom of the base up to the rim, then project that same distance above the rim. That is the measured move.

Treat it as a guide, not a promise. It is a reasonable place to take partial profit or expect a first reaction, and it lets you judge risk to reward before you enter. If the measured target only offers a small gain versus your stop, the setup is not worth taking, however pretty the shape.

The rim and handle are order pools Breakout buys rest on the rim, stops rest under the handle

Every cup and handle is a map of where orders rest: breakout buy orders queue on the rim, and early buyers' stops sit under the handle. Obvious levels pool liquidity, and the pattern's final moves run between those two pools.

Think about who is positioned. Breakout traders queue buy orders right on the rim. Early buyers who bought the recovery place their stops just under the handle. Both of those are pools of liquidity sitting at completely predictable prices. Large players who need to fill size cannot do it without someone to trade against, so price gets moved into that liquidity: first down to sweep the early longs out under the handle, then up through the rim to trigger every resting breakout order at once.

Failure modes and invalidation The deep V, and the handle that never reclaims the rim

A pattern you cannot invalidate is a pattern you cannot risk-manage. Two failures show up again and again: the deep V cup with no base, and the handle that breaks down instead of holding.

• Handle too deep: if the handle retraces most of the cup, it is not a pause, it is a second leg down. Stand aside.
• No reclaim: a sweep below the handle is fine; failing to climb back above it is not. No reclaim, no trade.
• Base too tight in time: a V that snapped back in a few candles has no absorption behind it. Treat its rim break with suspicion.