Cup and handle

A named chart pattern consisting of two parts. The cup is a decline and a rounded recovery that returns price to roughly where the decline began, curved rather than sharply pointed at its base. The handle is a smaller and shallower drift lower that forms near the top of the cup, and the pattern is conventionally treated as complete only when price moves back above the level joining the two rims. It was popularised in equity analysis and is applied by chartists to other markets by analogy.

The conventional reading is that the rounded base describes selling that exhausted gradually rather than abruptly, and that the handle describes a last round of profit taking near the old high. A common convention sizes an objective by projecting the depth of the cup upward from the rim, and another expects volume to thin through the handle. Both are conventions of the technique rather than established properties of markets.

Identification is the weak point. There is no agreed rule for how deep a cup may be, how long it may take, how shallow the handle must be, or how rounded is round enough, and the pattern is named only once it has completed. Published tests of its reliability differ from one another largely because each encodes different drawing rules, so the honest statement is that the shape describes a sequence that has already occurred rather than one that is going to.