Cup and handle

A rounded recovery with a small pullback at the top

A cup and handle has two parts. First, the cup. Price drops from a recent high, finds a bottom, and rounds back up to roughly the same high again. The shape is a smooth U, not a sharp V. Sharp V-bottoms are usually too violent to form clean cups. Second, the handle. Right at the top of the cup, after price has retraced back near the prior high, it pulls back slightly and drifts sideways or gently down for a few candles. That small pullback is the handle.

The pattern is bullish continuation. The interpretation is straightforward. Price tested a high, sold off, did the work of finding a bottom, and rounded back up with patience instead of panic. That round shape signals controlled accumulation rather than a violent recovery. The small pullback at the top is one final shake-out of weak hands before the breakout. A decisive close above the rim of the cup is the trigger.

The handle should be small relative to the cup. Both shallow in depth and short in duration. If the handle is too deep, the structure starts to look like a double top instead of a cup and handle. The difference is real. A double top fails at the rim and never breaks through. A cup and handle has a small pullback and then breaks through cleanly. The same two highs can mean either thing depending on what happens next.

Origin and honest reality check. The pattern was popularized by William O'Neil in stock market writing decades ago. It is well known and well taught. The actual statistical reliability across instruments and timeframes is more variable than the textbook makes it sound. The pattern works best when the cup forms over a meaningful duration on a higher timeframe, the handle is genuinely shallow, and the prior trend leading into the cup was clearly up. Outside those conditions, you are pattern-matching on a noisier signal than the textbook suggests.

Recap: cup is a rounded U recovery to prior high, handle is a small pullback at the top, breakout is a close above the rim. Best on higher timeframes with a shallow handle. Easy to confuse with a double top when the handle is too deep.