What is Cup and handle?
Finjon va dasta
In short
A continuation base: a rounded "cup" (typically 12–35% deep), then a shallow, low-volume "handle" just below the rim. The signal is a breakout above the handle's high (the pivot) on volume.
Also known as: cup with handle, rounding bottom, saucer
The cup and handle is a continuation base pattern. It forms after a prior advance and shows price preparing to reach new highs.
Structure
- The cup — a rounded, "U"-shaped decline and recovery. The left rim is the prior high; price falls, gradually forms a bottom and returns to the right rim — roughly the prior high. Typical depth is 12–35%. A sharp "V"-shaped drop and recovery is less reliable.
- The handle — a shallow, short pullback just below the right rim (often 1–2 weeks) on low volume. It shakes out the last weak holders.
- The pivot — the high of the handle. The signal is a breakout above the pivot on volume.
Why it works
During the cup, many investors who bought at the old high and sat on losses sell once they get back to breakeven. The handle is where that last supply gets absorbed. A shallow handle on low volume suggests sellers may be exhausted.
Entry and stop
Buys are usually made within 0–5% above the pivot (see base and pivot). The stop goes below the handle low or at a fixed percentage from the entry. Volume on the breakout day well above average — relative volume — is an important confirmation.
Left rim $100, a rounded bottom at $82 (−18%), right rim back at $100. The handle is a shallow dip below the rim ($95, −5%) on almost no volume. Volume draws a cup too: low at the bottom, rising on the right side. After $100 broke on volume the target is $118.
Example
Illustrative: a stock's left rim is $100. It falls to $75 (depth: $25 ÷ $100 = 25%), then over four months returns to $99 — the right rim. Next comes an 8-day handle: a shallow pullback from $99 to $93 (≈ 6.1%: $6 ÷ $99) on low volume. The handle's high — the pivot — is $98.50.
- Buy zone: from $98.50 to $98.50 × 1.05 ≈ $103.43.
- On the breakout day price is at $99.00, with volume 1.6 times average.
- Stop: just below the handle low — $92.80. Risk: $99.00 − $92.80 = $6.20 (≈ 6.3%).
With a $10,000 account and 1% risk ($100): $100 ÷ $6.20 ≈ 16.1 → 16 shares.
Mistakes and tips
A cup without a handle, or a "handle" sitting down at the bottom of the cup, is a different pattern. The handle should be in the upper part, near the right rim.
Chasing more than 5% above the pivot raises risk: the stop gets further away and a pullback becomes more likely.
If there's no volume on the breakout, price often falls back into the base — wait for confirmation.
Frequently asked questions
- Where do you buy a cup and handle?
- Usually when price breaks above the handle's high (the pivot) on volume, within 0–5% above the pivot.
- How deep should the cup be?
- Typically 12–35%. A very deep cup (say over 50%) is considered weaker because the recovery has to overcome a lot of overhead supply.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
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