<p>The cup and handle is a chart pattern that signals a potential upward move after a period of consolidation. It appears as a rounded “cup” shape followed by a brief dip, the “handle,” before the price breaks out to new highs. Traders view it as a bullish continuation signal, especially when volume supports the <a href="/NewSite/encyclopedia/breakout/" class="ency-link">breakout</a>.</p>

<h2>How It Works</h2>
<p>The pattern forms in four stages:</p>
<ul>
<li><strong>Prior uptrend</strong>: The asset rises steadily, creating the left side of the cup.</li>
<li><strong>Cup formation</strong>: Prices pull back and then rise again, tracing a rounded bottom that resembles a U shape.</li>
<li><strong>Handle development</strong>: After the cup’s right rim, a small sideways or downward drift occurs, usually lasting a few days to weeks.</li>
<li><strong>Breakout</strong>: When the price moves above the handle’s resistance level with increased volume, the pattern completes and signals a likely continuation of the prior uptrend.</li>
</ul>
<p>Volume typically declines during the cup and handle formation and spikes on the breakout, confirming buyer interest.</p>

<h2>Why It Matters</h2>
<p>The cup and handle helps traders identify entry points with a clear risk‑defined stop‑loss below the handle’s low. For example, if a stock forms a cup from $50 to $55, dips to $53 for the handle, and then closes above $55 on strong volume, a trader might buy near $55.50, place a stop near $52.50, and target a profit based on the cup’s depth added to the breakout point. This pattern works across equities, futures, and forex, making it a versatile tool for intermediate‑level technical analysts seeking bullish setups.</p>