Cup and Handle or Saucer and Handle pattern is one of the strongest patterns I’ve ever seen. This pattern doesn’t forms on charts very often because unlike other patterns like Triangles, Head and Shoulders, Rectangles etc., Cup and Handle pattern takes a long time to form. However, when it forms, it is so reliable and strong and generates strong and profitable trade setups.
This patterns looks exactly as it is named. It looks like a cup and its handle when you look at it from the side:
How Does Cup and Handle Pattern Form?
Please refer to screenshot below while reading this:
1. A to B: Cup and handle pattern starts forming when market starts going down strongly. The down movement forms the left side of the cup.
2. B to C: After a while of having a strong bearish market, bears becomes exhausted and so the down movement becomes slower, and we will have a sideways market for a short period of time. This sideways movement forms the bottom of the cup.
3. C to D: Then bulls take the control and market starts going up strongly, like when it started going down strongly at the beginning of formation of the cup. This strong up movement forms the right side of the cup.
4. D to E: After a while of going up, bulls become exhausted too, and so market stops going up strongly and forms a small sideways section which is the cup’s handle. This part is very important because it is where we can predict the next direction of market. I will tell you how.
How Can You Use Cup and Handle Pattern in Your Trading?
This is a good question. We learn the chart patterns to become able to use them for locating trade setups, otherwise there is no point to learn to recognize the chart patterns.
1. Going Long at the Bottom of Cup and Handle Pattern:
When a market starts going down strongly and then becomes slow and forms a sideways market that has a tendency to go up, experienced traders understand that the market is at the middle of forming a Cup and Handle pattern.
When the market is going down strongly to form the left side of the pattern, you cannot do anything unless you are already short because you had the chance to take a short position after a support breakout. However, you have to wait if you are not already short. If the market becomes sideways and shows a tendency to go up by forming stronger bullish candlesticks, then you know that the market is at the middle of forming a Cup and Handle pattern. At this stage, the left side of the cup and also most part of its bottom part is already formed, and you know that soon you will see a strong up movement which will form the right side of the cup. Therefore, you can wait for a resistance breakout to go long.
I am using the example above (screenshot) again to show you how and where you could go long when the market was completing the formation of the bottom of the cup:
2. Going Long/Short After the Handle Breakout:
There is a well-known rule about the handle which says, if the price breaks above the handle resistance, it will keep on going up strongly. This up movement can be at least the same as the size of the cup depth.
If you succeed to go long at the bottom of the cup, then you should close your position and collect your profit when you see that the market becomes slow again and bigger bearish candlesticks start appearing. This is the beginning of formation of the handle (D to E).
You wait for the handle to develop. It will have a resistance and probably a support. Sometimes the handle forms inside a triangle which makes it much easier to wait for the trade setup.
In the example above, price didn’t break above the handle’s resistance. Instead, it broke below a support line that formed after the handle formation and went down strongly. Therefore, we could go short. If it had broken above the handle resistance, then we could have gone long:
Now I show you an example where price breaks above the handle’s resistance and goes up strongly. This is something that is more expected when a Cup and Handle pattern forms on chart. In most cases bulls will take the control after formation of the handle, and price will go up after the handle resistance breakout.
The screenshot below shows another Cup and Handle pattern that formed on EUR/USD daily chart, after the above Cup and Handle that I already showed you.
The above pattern broke below the support and went down. However, the pattern below broke above the handle’s resistance and went up. Another thing about the example below is that the handle formed inside a Symmetrical Triangle that made it easier to wait for the breakout because we already knew that in an uptrend, it was more probable that market breaks above the resistance of the formed Symmetrical Triangle (that in this case is the handle’s resistance also) and continues the uptrend:
How Far Will the Market Go After the Handle Resistance Breakout?
To answer this question, you have to plot a horizontal line above the handle highest level. The distance of this line from the bottom of the cup is the size of the up movement that will occur after the handle’s resistance breakout.
Please look at the screenshot below. I have plotted a horizontal line above the handle’s highest high (the dashed red line). Then another horizontal line below the lowest low of the cup. The distance of these two lines is 914 pips. If we had taken a long position after the handle’s resistance breakout, we expected that the market would go up for 914 pips. To prove if it would or not, I plotted another horizontal line 914 pips above the horizontal line I plotted above the handle’s highest high. As you see on the screenshot below, the market did went up exactly for 914 pips and then reversed and went down. It is amazing, isn’t it?
There are some other ways to determine the breakout movement, like using Fibonacci levels. But I don’t want to make this article too complicated by using Fibonacci. We’ve talked about Fibonacci in some other articles:
Inverted Cup and Handle Pattern:
Inverted Cup and Handle is as common as the regular one. It looks exactly the same, but inverted. In Inverted Cup and Handle, we wait for support breakout to go short.
The Inverted Cup and Handle you see below could give us several opportunities to go short:
This screenshot shows the same Inverted Cup and Handle pattern, but with a smaller magnification. As you see, with this the market also went down very strongly after the support breakout:
As you see, Cup and Handle pattern is such a strong pattern. Although it doesn’t form on the charts very frequently, it works strongly and its breakouts are reliable and profitable.
Keep in your mind that you should not let your mind form a pattern when there is no pattern on the chart. Do not see the patterns that don’t exist on the charts. Wait for the patterns to form completely and then decide about taking positions.
Forming a Strong Cup and Handle Pattern on USD/CHF Monthly Chart
USD/CHF has already formed half of a Cup and Handle pattern on the monthly chart so far. It means the A-B and B-C parts are already formed. Still we don’t know whether it will form the second half to complete the Cup or not. However, if it breaks above the 1.03269 resistance level on the monthly chart, then most probably it will go up to form the second half:
LuckScout Team
I have read elsewhere the cup and handle pattern must originate from an uptrend-I didn’t see that mentioned here and the chart examples do not illustrate it. Do you agree?
LuckScout
Cup and handle pattern can form anywhere. It does not have to originate from an uptrend.
LuckScout Team
Thank you so much for your quick reply. I love your blog/site, there is a lot of great information here, well-presented and illustrated-thanks!
DaveBenroe
This is a great revelation. Thanks a lot for this special info.
In fact, I am really gaining a lot from your educational information.
Utsav
In how much time, the target will reach if the Cup and Handle is almost 4.5 years long?
Is such a long formation reliable?
LuckScout Team
It is impossible to say how long does it take to reach the target.
If the pattern is formed on a long time frame like weekly or monthly, then it works. Why not?
Kerry
I have been reading everything on your site for the last two weeks. I am new to and think the methods used buy you guys along with the longer time frames, make more sense than anything else I have read. I started trading a demo account this week. I am trying to learn how to read charts and think I see a cup and handle forming on two monthly charts can you check and tell me if I am right.
1. EUR/AUD – Top of cup 1.5935 bottom of cup 1.1600 and flat of cup is 1.1362. (handle is not fully formed but almost) first candle is 1/31/10
2. GBP/AUD – this on is an angle so I will just give you dates for the top and bottom and handles. The start of the cup is 09/30/09 cup finishes on 1/31/14 and the handle is completing on the current monthly candle.
Can you please tell me if these are valid or am I making something work that is not there?
Matej
Hi
Excellent article, thank you!
I would like to ask you if you please check the daily chart AUD/CAD (it looks that the cap start created on 12.11.or even 04.11. and end 01.21. After 21st of January and till now the part of handle were created? Am I right or am I see the pattern that don’t exist? Thanks for your reply.
LuckScout Team
Yes, you are right. That is also a Cup and Handle Pattern. The handle is being formed.
Rajiv
Hi,
Very nice article. Do we see this pattern frequently for one to be on lookout for it?
Thanks
LuckScout Team
Not too frequently because this pattern takes a long time to form. But we usually see it on the time frames we follow.
Keith A.
I have a question about the Cup and Handle Pattern forming on a Stochastic Indicator. Over the last month I’ve seen a pattern that looks like the Cup and Handle Pattern form on the Stochastic Indicator several times. And after the pattern forms the price goes straight up every time. Is my imagination just running wild are could there be some merit in this?
LuckScout Team
May I see a screenshot please?
Keith A.
Could you email me where to send it to.
LuckScout Team
You can upload it to tinypic.com and post the link here on this page.
Keith A.
http://i60.tinypic.com/j9aqaa.jpg
Here it is. If you see the pattern in the white box on the Stochastic. I did notice that the other times I saw it the blue stochastic has to go abruptly down then straight back up and the red has to flatten out. But this time it did it for 118 pips and last time if I can find it I will send it. It did it for around the same. Same exact shape formed on the Stochastic. Other times I have seen the little dip and the fast line not go directly down it doesn’t seem to do it. But when it makes its v-shaped dip and then crosses over the slow it goes up for around a hundred pips. It’s probably just my imagination as I have only seen it a couple of times so I can calculate a percentage with it. I was just wondering if you thought it possible.
LuckScout Team
It seems you are right (although I have never heard of Stochastic Cup and Handle pattern). It seems there is another one formed on Feb 16th on the same screenshot you have sent. If I were you I would check the back data to see whether the same pattern has worked each time or not. I check it on EUR/USD daily and as far as I see it works only when there is a strong agreeable movement before the handle starts forming. It doesn’t work when the market is slow and Bollinger Upper and Lower Bands are close to each other. Also an inverted pattern forms against the trend which is too risky to take.
If you spend some time on it, you can create a good trading system with strict and sharp rules with it. Keep in your mind than Stochastic is as tricky as Bollinger Middle Band. So be careful.
Keith A.
thank you so very much for you time and attention to this. You are appreciated more than you will ever know. I’ve been checking over some older charts and I see it form every now and then. Much more frequently then I see the formation forming on the candlesticks chart itself. I’m not very proficient on the back testing part of MQL4 or 5 but I will look into it further. Maybe I can come up with a system and sell it like everyone else because if I can’t keep my emotions under control it’s going to be the only way I ever make anything from. But thank you again for your time on this and on everything else you have answered in the past. Keith
TJ
I have heard about of cup and handle before but never as well explain than here at LuckScout.
Thank you again Mr. Pottorff
LuckScout Team Long
, as usual very informative on the subject at hand, have heard of cup and handle but also not had it explained in such detail.
Thank you.
Iva Hampl
Hi
First has to be formed cup and then handle or it doesn’t matter?
On eur/usd A. is much higher then D , doesn’t need to be similar level?
Is there any role how long must be handle
Many tnx iva
LuckScout
Iva,
It always forms the cup and then the handle.
Please share your EUR/USD chart and market A and D, so that I can see what you mean.
Iva Hampl
Hi
Sorry I wasn’t clear about eur/usd I meant your 5. pic up here
Tnx iva
Rajon Rahman
This article is very helpful to me.
thank you.
Arin Davidian
It was my first time to read about this pattern .very interesting.a real money making pattern if one can see it clear.thanks.
Casey Ram
Hi: USDJPY Monthly chart (2015.09.30) – is Handle forming in a Cup & Handle pattern? Or the bottom is too sharp?
Thanks.
LuckScout
Casey,
Yes, it can still be known as a Cup and Handle pattern. It is forming the handle.
N A
I was looking for this article!! I think that there is another confirmation that I’m lucky!! Hahaha
Thankss
Ivan Todorov
First of all i would like to thank you for the clear explanation. I read what should we expect if the price break the handle resistance , but what about broken support?
Reza Samimi
That was the first time I was reading cup&handle pattern … that is really amazing … thanks for sharing this valuable strategy with us.
Dogan Sahin
USDCAD monthly time frame has finished cup and handle formation. It looks like go up. But has to wait 1.33 very strong rezistans zone broken.
GODWIN
This explanation is well illustrated to understand easily, thanks for the update
Chin-Jung Chen
Although I have never traded this pattern, its appearance is very special, and I still have a lot to learn
David
Great article! What is described here makes a lot of sense. You take every trade setup as it presents itself, not losing sight of the bigger Cup and Handle pattern forming. You can’t go wrong with this type of analysis. Thanks.