What to look for in stocks: Cup and Handle Pattern

Overview:

1. What is a Cup and Handle Pattern?

2. What does it mean/show?

What is a Cup and Handle Pattern?

A cup and handle price pattern on a security's price chart is a technical indicator that resembles a cup with a handle, where the cup is in the shape of a "u" and the handle has a slight downward drift. The pattern's formation may be as short as seven weeks or as long as 65 weeks. The pattern can be better visualized with the image above.

What does it show/mean?

.A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. There are 3 main factors to take into account when looking at such patterns. They are:

Length: Generally, cups with longer and more "U" shaped bottoms provide a stronger signal. Avoid cups with a sharp "V" bottoms.

Depth: Ideally, the cup should not be overly deep. Avoid handles that are overly deep also, as handles should form in the top half of the cup pattern.

Volume: Volume should decrease as prices decline and remain lower than average in the base of the bowl; it should then increase when the stock begins to make its move higher, back up to test the previous high.

KEY TAKEAWAYS

1) A cup and handle is a technical chart pattern that resembles a cup and handle where the cup is in the shape of a "u" and the handle has a slight downward drift.

2) A cup and handle is considered a bullish signal extending an uptrend, and is used to spot opportunities to go long.