What is Cup and Handle Pattern?

The Cup and Handle pattern is a bullish continuation pattern used in technical analysis to identify potential buying opportunities. It is identified by a "U" shaped price movement, forming the cup, followed by a brief consolidation period, forming the handle. The pattern resembles a teacup with a handle and can take several weeks or months to form.

The Cup and Handle pattern signals a potential uptrend continuation and is usually found in long-term charts. The cup represents a period of consolidation and accumulation, where the stock price is moving sideways or declining slightly. The handle represents a brief consolidation period, usually in the form of a downward-sloping channel or a rectangle. The handle should ideally be no longer than one-third of the cup and can last from one to four weeks.

The pattern is confirmed when the stock price breaks out above the handle resistance level on higher-than-average trading volume. Traders typically look for a minimum price target of the pattern`s height added to the breakout level.

It is important to note that not all cup and handle patterns will result in an uptrend continuation, and traders should always use caution and consider other technical indicators and market factors before making any trading decisions based solely on this pattern.