The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. There are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right-hand side and then after that the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance and is seen as a reinforcement of the uptrend.

Let us also see how exactly this indicator works. The cup should resemble a bowl or rounding bottom. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case and you have to provide for some kind of aberration in this regard.

Here are some of the key points that you need to remember about the interpretation. Firstly, after the high forms on the right side of the cup, there is a pullback that forms the handle. The handle is the consolidation before breakout and can retrace up to 1/3 of the cup's advance, but usually not more. Secondly, the cup can be spread out from 1 to 6 months, occasionally longer. Ideally, the handle will form and complete over 1-4 weeks. Thirdly, the buy point occurs when the stock breaks out or moves upward through the old point of resistance (right side of the cup). This breakout should occur with increased volume. Fourthly, the price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point. Again most of these rules are apparently only deduced from empirical studies and hence cannot be treated as sacrosanct.