Cup and Handle Pattern: Entry & Exit Rules Explained
Introduction
The cup and handle pattern is a bullish continuation pattern that provides a strong technical setup for swing traders. Recognized by its “U” shaped base followed by a smaller consolidation, this pattern is especially effective in trending markets. In this guide, you’ll learn how to identify, confirm, and trade the cup and handle pattern in stocks, forex, futures, and crypto.
What Is the Cup and Handle Pattern?
The pattern forms during an uptrend and signals a potential continuation after a temporary consolidation.
Structure:
- Cup: A rounded bottom resembling a “U” shape
- Handle: A short consolidation or pullback to the side
- Breakout: Occurs when price breaks above the handle’s resistance
Type: Bullish continuation
Reliability: High in uptrending markets
How to Identify a Valid Cup and Handle
- Prior Uptrend: Pattern should form after an established upward trend.
- Cup Formation: Smooth, rounded base (not V-shaped).
- Handle Formation: Sideways or downward-sloping consolidation.
- Breakout Point: The top of the cup is the key resistance level to break.
Entry, Stop Loss, and Target
| Strategy | Description |
|---|---|
| Entry Point | Buy after price breaks above the handle resistance |
| Stop Loss | Just below the lowest point of the handle |
| Profit Target | Measure the depth of the cup and project it upward from breakout |
Example: Cup and Handle in AAPL Stock
- Cup Depth: $5
- Breakout Level: $150
- Target: $155 (150 + 5)
- Stop Loss: Below $148 (handle low)
Timeframes & Markets
- Stocks: Best on daily and weekly charts for swing setups
- Forex: Works well on 4H and Daily (e.g., EUR/USD, GBP/JPY)
- Crypto: Frequently seen on BTC, ETH, SOL in trending markets
- Futures: Useful on 1H to 4H for continuation setups (ES, NQ)
Volume Confirmation
- Cup: Volume typically declines during the base
- Handle: Low volume during consolidation
- Breakout: Sharp rise in volume confirms breakout strength
Tips for Trading the Cup and Handle
- Wait for a clean breakout above the handle before entering.
- Avoid V-shaped cups—reliable patterns form rounded bases.
- Use volume confirmation for added reliability.
- Consider adding position on a breakout retest for better entries.
FAQs
Is the cup and handle pattern reliable?
Yes, especially in bullish markets with volume confirmation.
Can this pattern fail?
Yes, if breakout volume is weak or price forms a shallow cup.
What timeframe is best for this pattern?
Daily charts for stocks and 4H for crypto or forex.
Does the handle always slope downward?
Ideally yes, but it can also be flat. Avoid upward-sloping handles.
Can I use this pattern in crypto trading?
Absolutely. It appears frequently on trending coins like BTC, ETH, and SOL.
