Cups with Handles are similar in appearance to Rounded Bottoms. Like rounded bottoms, the pattern includes an elongated U-shape. However, the pattern also includes a short period of consolidation of 1-2 weeks in duration, which tends to be downtrending. The pattern is similar in appearance to a coffee cup with a right-side handle, and indicates the potential for an uptrend.

Following are important characteristic to look for in a Cup and Handle.

Shape

The cup always precedes the handle. As the cup develops, the price pattern follows a gradual bowl shape. There should be an obvious bottom to the bowl; a v-shaped turn is not a good indicator.

The depth of the cup indicates the potential for a handle and subsequent breakout to develop. The cup should be fairly shallow.

The handle tends to be down sloping, and indicates a period of consolidation. Consolidation occurs when the price seems to bounce between an upper and lower price limit. You can track the down sloping angle of the handle by drawing trend lines across the upper and lower price limits. If the price ascends outside of the trend-lines, then it has the potential for breakout. If the price ascends beyond the upper, right side of the cup, then the pattern is confirmed, particularly if it is accompanied with a sharp increase in volume.

Volume

Volume tends to parallel the price pattern. Consequently, during the cup formation, as price descends, volume tends to decrease. Following a period of relative inactivity (at the bottom of the cup), the price pattern starts an upward turn and volume tends to increase.

During the handle formation, the volume decreases. However, you will notice an increase in volume when the price breaks out beyond the right side of the cup.

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