The cup and handle is a bullish continuation pattern resembling a teacup when viewed from the side. The cup forms as a rounded bottom with the left and right rims at approximately the same level, followed by a small downward-drifting consolidation (the handle). A breakout above the handle's resistance triggers the measured move, calculated from the bottom of the cup to the rim.
Cup: rounded bottom formation, ideally U-shaped rather than V-shaped. Handle: small pullback or flag formation on the right side of the cup. Volume: decreases during the cup formation, increases on the breakout. Duration: the handle should be no more than one-third the length of the cup. Inverted cup and handle: bearish mirror pattern.
Enter on a breakout above the handle's upper trendline with above-average volume. Aggressive entry at the lower end of the handle with a tight stop. The handle should retrace no more than 50% of the cup's depth. Confirm with momentum indicators turning bullish at the breakout point.
Measured-move target equals the depth of the cup added to the breakout point. Place stops below the low of the handle or the midpoint of the cup. Trail stops using the rising handle trendline. If the breakout stalls with declining volume, consider reducing position size.
4H, Daily, Weekly
The most powerful cup and handle patterns form over weeks to months on the daily chart. A V-shaped cup indicates a less reliable pattern because it suggests the market did not adequately absorb supply. The handle should drift slightly downward — a handle that trades sideways or upward is less ideal.
Pennants are short-term continuation patterns that form after a strong directional move. They resemble small symmetrical triangles, with converging trendlines creating a compact consolidation zone. Unlike flags, which have parallel channels, pennants converge to a point. The breakout typically occurs in the same direction as the preceding move, with the measured target based on the flagpole.
Triple tops and triple bottoms are reversal patterns where price tests the same level three times before reversing. They are essentially double tops and bottoms with an additional test, making them rarer but potentially more significant. The three-touch structure confirms that a price level is acting as a strong barrier, and the eventual break of the pattern's support or resistance level triggers the reversal.
Broadening patterns, also called megaphone or expanding patterns, form when price creates progressively higher highs and lower lows, diverging rather than converging. These patterns reflect increasing volatility and disagreement between buyers and sellers, often appearing during periods of uncertainty or at major market turning points. Broadening patterns are among the most challenging formations to trade because they lack the contracting structure of typical chart patterns.
The head and shoulders is one of the most reliable reversal patterns in technical analysis. It consists of three peaks — a higher central peak (the head) flanked by two lower peaks (the shoulders) — connected by a neckline drawn across the reaction lows. A break below the neckline confirms the reversal, with the measured target equal to the distance from the head to the neckline projected downward from the breakout point.