Cup and handle pattern: how to recognise and scan for it

A cup with handle is a continuation base made famous by William O’Neil. After a strong advance a stock rounds off, recovers, then pauses briefly before a possible breakout.

Watch the Popular Scans in the scanner (Hindi, from 8:51).

Anatomy of the pattern

• Prior uptrend: the base forms after a sizeable advance.
• The cup: a rounded decline and recovery, commonly 12–35% deep and 7 or more weeks long.
• The handle: a short, shallow pullback in the upper half of the cup, with volume drying up.
• The pivot: the high of the handle, the level traders watch for a breakout.

What to look for

A U-shape tends to be preferred over a sharp V. Volume usually dries up in the handle and expands on a breakout. Very deep cups and loose, wide handles are generally seen as lower quality.

Scanning for it

The swing trading screener has a cup-with-handle screen that finds a 12–40% cup of at least seven weeks with a shallow handle in its upper half, among strong-RS stocks. Open a result to judge the shape yourself.

Risks

Patterns fail often, especially in weak markets. Related setups include the VCP. Use the market’s trend and breadth as context, and decide a stop before any trade.

A worked example

A stock rises 80%, then drops 25% over ten weeks, rounding off the low, and climbs back to within 8% of its high. It pulls back 7% over two weeks with lighter volume: the handle. The handle high of 250 is the pivot. A close above 250 on strong volume completes the pattern; a close below the handle low cancels it.

Strategy examples

These are illustrative rule sets that show how the scanner can be used. They are not recommendations or advice, the numbers are examples, and rules like these can lose money. Test any idea on your own and manage risk before acting.

Pivot breakout

1. Run the cup with handle screen with RS 70 or higher.
2. Check cup depth (12–35%) and handle depth (under about half the cup).
3. Set an alert at the handle high.
4. Act only on a breakout with volume well above average.

Handle-forming watchlist

1. Add cups already within 10% of the high.
2. Check each day for volume dry-up in the handle.
3. Remove any that drop below the cup’s halfway point.

Depth filter

1. Prefer shallower cups in a weaker market and allow deeper ones when markets are strong.
2. Skip V-shaped recoveries with no base.
3. Combine with sector strength.

Common mistakes

• Calling every dip a handle.
• Entering before the pivot clears.
• Ignoring deep, loose cups that signal poor structure.
• Forgetting the market direction.

Frequently asked questions

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