The Cup And Handle Chart Pattern (sometimes referred to as "Cup With Handle") is a continuation pattern, which means that it once the pattern has completed and the chart breaks out of it, the price will continue moving in the same direction that it was heading before it hit the resistance that led into the pattern forming. The cup and handle isn't as common as some of the other chart patterns like any of the Triangle Chart Patterns, but what it does have going for it, is when it appears it has an extremely high chance of following through as expected. Note: All chart patterns have high chances of success, which is why they have been highlighted in the first place, but I have personally found that some, like the Cup and Handle, seem to have a bit better chance of following through once they form). The cup and handle is definitely one that you should keep an eye out for, because from my personal experience, it almost always ends up giving a better return then expected.
So what is the cup and handle chart pattern? Well, the cup and handle usually forms after a bit of a gain (or loss for the bearish variety) then the chart will form a "U" pattern, when the far side of the "U" reaches roughly the same height as the beginning of the "U" (usually a little lower then the far side, but not always) it will start to form a 'handle' which can be compared to a small flag shape. If you get both the "U" followed by the Handle (small flag pattern) you have a successful Cup and Handle pattern. You will normally notice a large increase in volume, followed by a rapidly ascending (or descending for the bearish cup and handle) price. One thing to keep in mind, is that the closer the chart pattern resembles a "U" shape the stronger the signal, try to avoid shapes that take on more of a "V" shape, because they aren't as strong of signals. The handles should also be short, so a good rule of thumb would be no longer then the top half of the cup. Take a look at the following example in figure 1, which shows a bullish Cup and Handle Chart Pattern.
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| figure 1: Bullish Cup and Handle |
I probably could have drawn this example a little better, but I think it shows the general form of the Cup and Handle nicely.