Technical Session: Identify Cup and Handle patterns to set trading strategies

Chandan Taparia

The Cup and Handle pattern is a bullish continuation pattern that marks a consolidation period followed by a breakout whereas Inverted Cup and Handle pattern is a bearish continuation pattern.

Cup and Handle 

A Cup and Handle price pattern on bar charts resembles a cup and handle where the cup is in the shape of a "U" and the handle has a slight downward drift. The right-hand side of the pattern typically has low trading volume. As the cup is completed, a trading range develops on the right-hand side and the handle is formed.

The handle often takes the form of a sideways or descending channel or a triangle. When the price moves out of the handle, the pattern is considered to complete and the price is expected to rise that signals a continuation of the prior advance.

Inverted Cup and Handle

The inverted Cup and Handle pattern forms an upside-down cup and handle. The pattern is formed after a pullback from a swing low before a sell-off to the prior swing low and stalls due to underlying support. The stock then stalls much like a bear flag with slight upward pressure before breaking down below support.

The significance of the pattern when after hitting underlying support from the prior swing low, a very minor correction is put in and then stock breaks down past support which can be a sign that overhead supply in the security may be increasing.