Cup and Handle Pattern: A Guide for Traders

A cup and handle formation is a type of pattern that can be seen on price charts from several different financial markets. Technical analysts will use this pattern as an indication that the market is about to move upward. 

As the name of the formation implies, the cup and handle formation looks a lot like a cup with a handle. The beginning of the formation will be the left side of the cup. The pattern will then move down and form a u-shaped cup. At the top edge of the cup, the handle will then move down towards the right at an angle. After the handle forms, the stock will generally take off in an upward direction. 

When you are looking at this type of formation, the bottom of the cup could form as quickly as seven weeks and can take as long as 65 weeks. This means that you could potentially see this formation on many different time frames on a chart. 

When looking at the cup, you want to make sure that it is rounded. If you are looking at a "V" shape cup, then the signal is most likely invalid. You should also be careful is the handle shoots down too rapidly.