# Cup and Handle Pattern: The Cup, the Handle and the Breakout

Source: https://www.tradicted.com/lessons/chart-patterns/cup-and-handle-pattern/

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A cup and handle pattern is a rounded dip back up to an old high, then a small dip near the top. The rounded dip is the cup. The old high is the rim. The small dip is the handle.

Traders watch a line at the rim. Until a candle closes above it, the shape is only a potential cup and handle.

The free lesson on this page has two charts, then one question about the handle. You draw the rim, judge a candle whose wick pokes above it and call what the price does next. On the second chart the break does not last.

The charts are generated, with no ticker and no dates.

## What does a cup and handle look like?

The pattern forms partway up a rise, as a [bull flag](/lessons/chart-patterns/bull-flag-and-bear-flag/) does. It takes weeks longer than a flag. The price climbs to a high, dips slowly and climbs back to about the same height. Then it dips a little and turns up again.

| Part | What it is |
|---|---|
| Left rim | The high before the cup |
| Cup | A slow, rounded dip and the climb back |
| Right rim | The high where the climb back ends, near the left rim |
| Handle | A small dip after the right rim, in the cup's upper half |
| Line | A horizontal line at the left rim |
| Break | A candle closing above the line |

![A daily chart that climbs to a high, dips in a slow rounded curve and climbs back to about the same height](https://www.tradicted.com/lessons-img/pat_l4-pat_l4_c10.s0-3837c197.webp)

*A climb, a rounded dip, a climb back. The dip is the cup.*

On the lesson's first chart the left rim is a wick to 162.29. The cup bottoms at 142.00 twelve days later. Twelve days after that the right rim reaches 161.95, a third of a point under the left one.

The rims rarely match to the cent. Thomas Bulkowski's *Encyclopedia of Chart Patterns* wants them near one price and adds "Use your own judgment."

## Why does the cup have to be rounded?

Traders read a rounded cup as a slow turn: the selling fades day by day before the buying takes over.

A V is a fast drop and a fast recovery. [StockCharts' ChartSchool](https://chartschool.stockcharts.com/table-of-contents/chart-analysis/chart-patterns/cup-with-handle) calls a V-shaped bottom "too sharp of a reversal to qualify."

The cup on the lesson chart takes 24 days from rim to rim, with the lows spread over about a week.

## What is the handle?

The handle is a small dip after the right rim. The price pulls back once more before it tries the old high again.

The lesson's rule is a dip that stays in the cup's upper half and takes less time than the cup.

![The same chart with a horizontal line at the left rim's high and a small dip under the line after the cup](https://www.tradicted.com/lessons-img/pat_l4-pat_l4_c10.s2-9003d0b7.webp)

*The line at the left rim, and a small dip under it in the cup's upper half: the handle.*

On the lesson chart the cup runs from 142.00 to the rim at 162.29, so its halfway mark is 152.14. The handle dips to 156.54, well inside the upper half. It lasts about a week, against 24 days for the cup.

A dip to the cup's bottom is too deep to be a handle. That is the lesson's closing question.

ChartSchool puts the limit tighter: a handle can retrace up to a third of the cup's climb, "but usually not more." The lesson chart's handle gives back 5.41 of the 19.95-point climb, about 27%.

## When does a cup and handle break out?

When a candle closes above the rim. Until then the lesson calls it a potential cup and handle, even with the handle in place.

A wick above the line does not count. A long wick is a price the day reached and [gave back](/lessons/candlestick-patterns/how-to-read-candlesticks/) by the close.

![A boxed candle whose upper wick pokes above the rim line while its body closes just under it](https://www.tradicted.com/lessons-img/pat_l4-pat_l4_c10.s3-a25e2a3e.webp)

*The wick reached above the rim. The candle closed under it, so no break yet.*

The lesson stops on this candle and asks whether the pattern has broken out. Its wick reached 162.80, above the line at 162.29. It closed at 161.44, under the line.

The break was still to come. The next day did the same thing on a smaller scale: a high of 162.35, a close of 161.78.

![A candle closes above the rim line and the price climbs well above it over the next week, with one sharp red day at the end](https://www.tradicted.com/lessons-img/pat_l4-pat_l4_c10.s5-16827c4d.webp)

*Two days later a candle closed above the rim. Now it is a cup and handle.*

The day after that closed at 163.81. That close is the break. Now traders call it a cup and handle. The price opened above 166 the next morning and was near 170 a week later.

Many guides also want volume to rise on the breakout day. The lesson's only test for the breakout is the close.

## Can a cup and handle fail?

Yes. Any pattern can fail, before the close above the rim or after it.

![A second cup and handle with a line at the rim and the last candle closing above the line](https://www.tradicted.com/lessons-img/pat_l4-pat_l4_c11.s0-cd0b0c26.webp)

*A second cup and handle. The last candle closed above the rim.*

The lesson's second chart has the same shape: rim at 162.00, cup low at 141.38, handle low at 155.12. A candle closes at 163.22, above the rim.

The lesson asks whether the price goes up or down from there.

![The same chart a week later: the price fell back under the rim the next day and stayed under it](https://www.tradicted.com/lessons-img/pat_l4-pat_l4_c11.s1-22c86d70.webp)

*The next day closed back under the rim. A false break.*

The next day closed at 160.67, back under the rim. A week later the price was still under the line, near 158.

A close beyond the line that does not stay there is a [false break](/lessons/support-and-resistance/false-breakout/). The rim was a resistance level. The [support and resistance](/lessons/support-and-resistance/how-to-draw-support-and-resistance/) lessons draw that kind of line too.

## What is an inverted cup and handle?

The same shape upside down, forming partway down a fall. The price drops to a low, rises in a rounded hump and falls back to about the same low. A small rise in the hump's lower half is the handle. A close below the old low is the break.

The lesson covers only the upright cup and handle.

## Where does the cup and handle come from?

William O'Neil introduced it in his 1988 book *How to Make Money in Stocks*.

It is a newer name than the double top or [head and shoulders](/lessons/chart-patterns/head-and-shoulders-pattern/). The ten patterns Andrew Lo, Harry Mamaysky and Jiang Wang tested in the [Lo, Mamaysky and Wang study](/research/lo-technical-2000/) did not include it.

The other patterns, each with the line traders watch, are on the [chart patterns](/lessons/chart-patterns/) page.

## Key points

- A cup and handle is a rounded dip back up to an old high, then a small dip near the top.
- The line is at the left rim, the high before the cup.
- The handle stays in the cup's upper half and takes less time than the cup.
- It stays a potential cup and handle until a candle closes above the rim. A wick does not count.
- A close above the rim can still fail and fall back under it.

Press Start above and draw the line at the left rim. The first chart patterns lesson, [double top and double bottom](/lessons/chart-patterns/double-top-and-double-bottom/), waits on a close the same way.