“Cup and Handle” is a continuation pattern that usually forms in bullish markets. Most “Cup and Handle” patterns are very reliable and offer great trading opportunities. “Cup” formation is developed during price rallies from the round bottom. The “Handle” part forms due to a price correction before a clear breakout to the upside.

Trading “Cup and Handle” pattern is a two fold process. First a “Handle” can be traded as a corrective pattern and secondly as a continuation pattern (of the prior trend) after a breakout from the top of the “Cup.” The handle part (right side) usually corrects about 25% to 38% (of depth of the Cup) from the high pivot point to the bottom of the Cup. After the correction (handle), the pattern will pick its prior trend and trade in a breakout fashion above the ‘top’ of 1 the ‘Cup’.

Trade: The best trading opportunity is generated when the price clears the top of the “Cup.” A “long” trade is entered when the price closes above the high of the cup.

Target: Most “Cup & Handle” patterns result from 62% to 100% the depth of the “Cup” from the breakout levels.

Stop: Place a “stop” order below the low of the handle to protect the trade.

Trading Cup and Handle Pattern

Trading Cup and Handle Pattern

The example above shows a “Cup and Handle” pattern formation from the Russell Emini (Em) 30 minute chart. In January 2007, a “Cup and Handle” pattern has formed after Em’s uptrend. During the Cup formation (January 24 to January 29) the “Cup” pattern made highs at 798.6. A “Handle” part is formed from January 29 to January 3oth between798 to 792. On January 3 1 St, prices closed above the high of the “Cup” level at 799 to signal a “long” trade.

  1. Enter a “long” trade above the top of the “Cup” level at 799.
  2. Place a “stop” order below the “Handle” at 792.
  3. Place a target at 62% to 100% of “cup” depth (1 2 to 18 points) from the breakout.

Trading Cup and Handle Pattern

Trading Cup and Handle Pattern

The example above illustrates a “Cup and Handle” pattern from the S&P Futures (ES) 610 tick chart. On April 13,2007, during the morning session, ES formed a “Cup” formation between 1452 and 1453. Around 10.38 a.m., a correction in the trade resulted in a 38% “Handle” formation to the 1455.5 level. A breakout above the top of the “Cup” level signaled a “long” trade.

  1. Enter a “long” trade above the high of the breakout bar at 1458.
  2. Place a “stop” order below the low of the “handle” at 1455.
  3. Target from 62% to 100% depth of the “cup” above the breakout level (1461 to 1464).

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