Cup and Handle Pattern

A conventionally bullish continuation shape. Treat its geometry, breakout direction, and measured move as testable hypotheses rather than evidence of accumulation.

Pattern Structure

The Cup

• Price rounds down from resistance, forms a "U" shaped bottom (not "V"), rises back to resistance
• Duration and symmetry are market- and timeframe-specific; define minimum and maximum bars before scanning

The Handle

• Small pullback from resistance into a declining flag/pennant
• Define handle depth as (lip - handle_low) / (lip - cup_low) and reject only at a pretested threshold
• Require the handle to remain above the cup midpoint only if that rule is part of the frozen specification

Workflow

1. Get Exact Data

get_candles_around_date(symbol=<symbol>, exchange=<exchange>, interval=<interval>, date=<cup_bottom_date>)

2. Mark Key Structure

Cup lip (resistance level where both sides of the cup meet):

draw_chart_analysis(action="create", drawing={
    "type": "resistance",
    "points": [
        {"time": <left_lip_time>, "price": <lip_price>},
        {"time": <right_lip_time>, "price": <lip_price>}
    ],
    "options": {"text": "Lip"}
})

Cup bottom:

draw_chart_analysis(action="create", drawing={
    "type": "highlight",
    "points": [{"time": <bottom_time>, "price": <bottom_price>}],
    "options": {"text": "Cup Low"}
})

Handle boundaries (2 converging or parallel trend lines):

draw_chart_analysis(action="create", drawing={
    "type": "trend",
    "points": [
        {"time": <handle_high1_time>, "price": <handle_high1>},
        {"time": <handle_high2_time>, "price": <handle_high2>}
    ],
    "options": {"text": "Handle R"}
})

draw_chart_analysis(action="create", drawing={
    "type": "trend",
    "points": [
        {"time": <handle_low1_time>, "price": <handle_low1>},
        {"time": <handle_low2_time>, "price": <handle_low2>}
    ],
    "options": {"text": "Handle S"}
})

3. Enter

Standard: Enter on break above cup lip with volume spike. Stop below handle low. Aggressive: Enter as handle finds support. Tighter stop, higher risk. Conservative: Wait for breakout + retest of lip (now support). Target: Breakout level + cup depth (lip to bottom distance).

Evidence and Validation

• Treat the setup as a testable hypothesis, not a prediction. Define thresholds, entry, invalidation, and exit before evaluating outcomes.
• Calibrate on the same instrument, venue, session, and timeframe. Use closed candles and a held-out or walk-forward sample; record every variant tried.
• Include spread, fees, slippage, borrow or funding, partial fills, and latency. Reject the setup when net expectancy is not positive or depends on one narrow parameter.
• Return observed inputs, missing data, cost assumptions, entry, invalidation, exit, and a valid, watch, or no-trade status.
• Research basis: Lo, Mamaysky & Wang supports testing objectively defined chart patterns, not assuming that a named shape has a universal measured-move edge.

Key Rules

• NEVER enter before the handle forms — cup alone is incomplete
• Treat a break below the cup midpoint as structural invalidation only when the chosen specification says so
• Measure relative volume during the handle and breakout; do not require an untested universal multiple
• Failure at lip on second attempt = potential double top, not cup and handle

Related Skills

• flag-pennant — The handle is essentially a small flag
• double-top-bottom — Failed cup breakouts can become double tops