The cup and handle pattern is one of the most popular chart patterns in technical analysis. Traders use it to spot potential breakouts, reversals, and trend continuations. However, not all cup and handle patterns indicate the same movement.
What Is a Cup and Handle Pattern?
A cup and handle pattern resembles a teacup. The "cup" forms a rounded bottom after a price decline, followed by a "handle," a small consolidation or pullback. This formation signals a potential continuation of the prevailing trend.
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Bullish Pattern: Appears in an uptrend and suggests further upward momentum.
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Bearish Pattern: Forms in a downtrend, hinting at a potential downward movement.
The psychology behind the pattern reflects investor sentiment: accumulation during the cup formation and cautious trading during the handle.
Bullish Cup and Handle Pattern
Formation:
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Forms after a sustained uptrend.
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The cup shows a rounded dip as traders take profits.
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A handle is a short consolidation, usually sloping downward before a breakout.
Key Characteristics:
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Uptrend precedes the pattern.
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The cup has a rounded bottom resembling a "U."
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The handle shows a minor downward pullback.
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Volume rises on breakout, signaling strong buying interest.
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Price target is calculated by adding the cup depth to the breakout point.
Bearish Cup and Handle Pattern
Formation:
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Appears during a downtrend.
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The cup forms a rounded top.
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The handle is a minor upward retracement before further decline.
Key Characteristics:
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Downtrend precedes the pattern.
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The cup has a rounded top resembling an upside-down "U."
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The handle shows a small upward consolidation.
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Volume rises on breakdown, indicating strong selling pressure.
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Price target is measured by subtracting cup depth from the breakout point.
Understanding the bullish vs bearish cup and handle pattern is crucial for any trader. Bullish patterns signal upward trends, while bearish patterns warn of declines. By recognizing the key differences, traders can plan entries and exits more effectively, manage risk, and capitalize on market momentum.
Whether you trade intraday, swing, or long-term, mastering these patterns adds a valuable tool to your technical analysis toolkit.
