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Key Takeaways
- A cup and handle combines a prior advance, a rounded cup, a smaller handle and an upside breakout.
- This example uses a $100 rim, $78 cup low and $93.50 handle low.
- The handle retraces $6.50 of the $22 cup advance, or 29.55%, meeting the selected one-third guideline.
- Projecting the $22 cup depth from the $100 rim gives a $122 objective.
- The inverse has an arch above support, a smaller upward handle and a downside breakout.
- Choose entry and stop references separately from the target anchor and handle-depth guideline.
What is a cup and handle?
A cup and handle is a bullish continuation chart pattern in which a prior advance is followed by a rounded base, the cup, and a smaller consolidation near the right rim, the handle. A breakout through rim resistance activates the setup, and the cup’s depth projected from the rim sets a measured objective.
Mark the rim, cup low and handle low. Set the chart interval and the intended holding period, then measure the actual price relationships.
Formula
Cup depth = right rim − cup low; handle retracement = (right rim − handle low) / cup depth; upside objective = selected anchor + cup depth; inverse objective = selected anchor − arch height- The example has $22 cup depth and $6.50 handle depth.
- Its selected handle guideline is retracement ≤ 1/3; $6.50 / $22 = 29.55%.
- The selected target anchor is $100 rim resistance, giving $122.
- The $93.49 stop reference is a separate trade input below the $93.50 handle low.
Cup and handle example: depth, handle and target
A stock advances from $62 to $100, rounds into a cup with a $78 low and returns to $100. It forms a handle down to $93.50, then closes at $101 above the rim. Assume a $93.49 stop reference and compare an intrabar fill at $100.01 with a separate fill at $101.
- Cup depth: $100 − $78 = $22
- Handle retracement: ($100 − $93.50) / $22 = 29.55%
- Rim-anchored objective: $100 + $22 = $122
- Assumed $100.01 entry: $6.52 stop distance and $21.99 target distance, ratio 3.37
- Assumed $101 entry: $7.51 stop distance and $21 target distance, ratio 2.80
The example reaches $118, finishing $4 below the $122 objective. The $93.49 stop reference sits below the original handle low. That exit reference remains distinct from the one-third handle-depth threshold, which corresponds to a low of about $92.67.
Cup depth = $100 − $78 = $22. Handle depth = $100 − $93.50 = $6.50. The retracement is $6.50 / $22 = 29.55%, meeting the selected one-third guideline.
Projecting from the $100 rim gives a $122 objective. The diagram continues to the example’s $118 finish, $4 below that target.
Cup and handle entry, stop and reward-to-risk
Choose a $93.49 stop reference, just below the original handle low. An assumed intrabar fill at $100.01 gives $6.52 planned distance and $21.99 distance to target, a 3.37 ratio.
A separate assumed $101 fill gives $7.51 planned distance and $21 target distance, a 2.80 ratio. Use the actual fill for an executed trade.
The stop reference is separate from the construction guideline. One-third of the $22 cup is $7.33, corresponding to a low of $92.67. A move to $93.40 is below the original handle low while still meeting the one-third depth rule. Keep the selected exit and the shape measurement distinct.
Inverse cup and handle
The reflected example declines from $138 to $100, forms an arch up to $122 and returns to $100 support. Its handle rises to $106.50 before a $99 breakdown.
Arch height is $22 and handle retracement is again 29.55%. Projecting down from support gives $78. An assumed $99 short entry with a $106.51 stop reference gives $7.51 planned distance and $21 target distance. The displayed sequence reaches $82.
How traders use the cup and handle
Measure participation at the breakout using Relative Volume.
The Options Profit Calculator prices the run from the $101 breakout to the $122 objective at each expiration, and Options Flow shows which strikes and expirations the large orders in the ticker favor.
Limitations of the cup and handle
- Fix the shape rules before marking the pattern. Handle-depth and cup-shape rules vary between sources, so the same chart can qualify under one rule and fail another. This page uses a one-third retracement guideline.
- Trail the stop as price nears the measured objective. The example stops at $118, $4 short of the $122 target.
- Set the stop below the handle low before entry. If a breakout fails and falls back below the rim, that stop reference defines the planned loss.
- Size from the entry rule you trade. An intrabar fill at $100.01 and a fill at the $101 close produce ratios of 3.37 and 2.80 from the same pattern.
- Match the chart interval to the holding period. A cup that forms over months on a daily chart may not appear on an intraday chart.
Bottom line
A cup and handle marks a rounded base and a shallow pause below resistance, which gives a defined breakout level, a stop below the handle and a measured objective. Fix the handle rule and breakout event before price arrives, size from the actual entry-to-stop distance, and trail the stop as price approaches the cup-depth target.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Fidelity Learning Center: Cup with Handle
- Fidelity Learning Center: Identifying Chart Patterns with Technical Analysis (transcript)
- Fidelity Learning Center: Technical Indicator Guide Overview
How entries are sourced, calculated and updated: editorial methodology.