4 Cup & Handle Patterns to Watch
One of the most easily identifiable chart patterns is also one of the rarest – the cup and handle pattern. In this post, I want to show you a few which are developing right now.
The cup and handle pattern is sometimes misinterpreted, so let’s just review the basics…
First, this pattern must be found within the context of an uptrend. This is an upside continuation pattern, so the existing uptrend is a necessity.
Second, the height of the cup is important to note. This is the depth or distance from upper resistance to the low end of the cup, and it’s added to the breakout zone in order to determine a price target.
Third, a rounded cup is ideal. This suggests there were no sudden or sharp changes of direction, but merely a mild pullback and gradual recovery.
Finally, the handle portion will resemble a narrow channel, sometimes tilted downward, and may occur on light volume. This is the coiling action which will precede the breakout, and it gives the pattern not only recognition but also validity.
I just ran across a handful of examples that I wanted to point out to you. These are currently building their handles and may need more time to mature. The key is that this pattern is only confirmed upon a breakout, so that’s what I’ll be waiting for.
Trade Like a Bandit!
Jeff White
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Ajesh | Nov 17, 2009 | Reply
Hi Jeff,
Won’t a cup be sometimes formed as part of a bottoming process?
Thanks,
-Ajesh
TheStockBandit | Nov 17, 2009 | Reply
Hey Ajesh,
Thanks for stopping by! What you may be referring to is a saucer or rounded bottom. They will look similar to the cup & handle, but no handle and the saucer will often take much more time to form.
Hope this helps!
Jeff
pete | Nov 17, 2009 | Reply
Jeff – nice post. Two questions: (1) Does volume in the breakout matter to you? (2) What violates the set up – a close below the low of handle?
Thanks,
Pete
TheStockBandit | Nov 17, 2009 | Reply
Thanks Pete & good to see you here!
I do like to see volume surge on the breakout, implies to me there is greater participation as the stock moves out of the consolidation (handle). Also, a close beneath the handle is grounds for either redrawing the handle, or negating the pattern altogether if the handle cannot be redrawn accurately.
Jeff
rofsjan | Nov 17, 2009 | Reply
Thank you for the great post.
Delbertino | Nov 18, 2009 | Reply
Much thanx; let’s shut Buffet up
pj | Nov 18, 2009 | Reply
Doesn’t the handles have to have a slight downward drift? Apple’s cup looks like more a v-shaped cup which should be avoid?
TheStockBandit | Nov 18, 2009 | Reply
Hey PJ,
Thanks for stopping by. Generally yes, the more V-shaped the pattern, the less it is a cup…the ideal look is a gradual pullback and recovery, as I mentioned in the post (“Third”). The handle itself can either be downward sloping, or it can be a horizontal channel. What you want to avoid is an upward-sloping handle, as rising channels tend to get resolved to the downside.
Hope this clarifies!
Jeff