Cup and Handle

The Cup and Handle is a bullish continuation pattern identified by William O'Neil, founder of Investor's Business Daily, in his influential book "How to Make Money in Stocks." The pattern resembles a teacup viewed from the side and consists of two parts: the "cup," a rounded, U-shaped decline and recovery that brings the price back to its previous high, and the "handle," a small downward drift or consolidation that forms near the prior high before the breakout. The cup typically forms over 7 to 65 weeks, with the depth of the decline usually ranging from 12% to 35% from the prior high. The handle portion usually lasts 1-4 weeks and should drift downward no more than 12-15% from the cup's right-side high. A key characteristic is that the handle should form in the upper half of the cup, and volume should decrease through the handle formation. The breakout occurs when price moves above the resistance level established by the cup's rim (the prior high), ideally on volume at least 40-50% above average. The measured price target is the depth of the cup added to the breakout point. The cup-and-handle pattern is particularly significant because it represents a full cycle of selling pressure, recovery, final shakeout (the handle), and then a breakout with fresh momentum. It appears across all timeframes but is most reliable on daily and weekly charts.