A cup and handle chart pattern is a bullish pattern that shows that a cryptocurrency or a stock is expected to rally to a high level.
The pattern is in the shape of a teacup, having a large round bottom at first and then a small dip followed by recovery. When the price breaks the neckline of this pattern, it is said to have been completed.
Below is a graphical representation of a real-world cup and handle pattern in Bitcoin. Here, you can clearly see a cup, handle, neckline, and the subsequent breakout.

Note: Opposite to the ordinary belief that chart patterns lead to rallies, it is important to understand that patterns are just a graphical representation and that rallies and crashes in the market occur due to demand and supply factors.
How to Trade a Cup and Handle Pattern?
The following are my strategies for entry, exit, stop loss, and profit booking, which might differ from person to person. Readers are advised to consult their financial advisor before trading.
- Entry: The typical entry is taken at the neckline breakout after the complete formation of the pattern.
- Exit: Exit is taken after the pre-decided profit booking level arrives.
- Stoploss: The stop loss for this pattern is kept at just below the neckline. Once the neckline breaks, the pattern is said to have failed.
- Profit Booking: Generally, profit is booked at the next major resistance, or a trailing stoploss method is used to book profits.
- Target: Generally, the target is assumed to be at a 10x higher than the depth, measured from the neckline
Success Rate
In any chart pattern, those formed on longer time-frames, i.e., weekly and monthly charts, have a higher chance of success than those formed on daily or hourly charts. Similarly, daily and hourly charts have a greater success rate than minute or second charts.
This is because longer timeframe charts represent long-time trends, which are more stable than short-term trends because they have sustained for a much longer time.
Therefore, a cup and handle pattern on a monthly chart is more likely to yield than on a weekly chart and similar for weekly-daily, daily-hourly and hourly-minute.
Also, chart patterns on a longer timeframe yield higher returns. This is why investors prefer long-term charts, while traders use short-term charts more. Scalpers use even shorter timeframe charts like minute or second charts.
Frequently Asked Questions
1. What is the investor’s psychology behind the cup and handle pattern?
The rounding bottom pattern is a sign of increasing confidence in that crypto or stock. When such a pattern forms, short-term buyers and those who enter at a high level are looking for an exit. This series of exits correct the chart by a bit (handle), and when the next series of buyers comes in, the breakout happens.
Sometimes, when people just want to exit, and no new buyers come in, the pattern fails. This is the reason why cups and handle patterns sometimes fail.
2. How reliable is a cup and handle pattern? What are a few ways to increase the accuracy?
Patterns forming in higher timeframes have a stronger chance of success.
A way that I use to increase efficiency is to invest in a cup and handle only in the following cases:
- There is a strong fundamental reason.
- There are news or events in the recent past or near future.
- Markets are getting better in terms of sentiment.
3. What is the inverse cup and handle pattern in trading?
The inverse cup and handle is a pattern just the opposite of this pattern and signals a breakdown in charts. It has a large dome-like structure, which shows a slow and grinding exit by investors and then a handle, which takes out all new buyers and forces others to sell.
4. What are the disadvantages of using cup and handle patterns?
Reliance on just charts is not recommended, and this is a major disadvantage of sticking to single patterns like cup and handle. Further, too much trading and a lack of complete knowledge force you to believe that there is a chart pattern even when there is none or when there is just a distorted chart.