Cup and Handle and Rectangle Patterns Explained

Two patterns that sit at opposite ends of the complexity scale: one is a slow, rounded base that ends in a breakout, the other is a plain range.

Cup and handle (bullish continuation)

Structure:

1. The cup: price rounds down from a high and rounds back up to roughly the same level, forming a U shape.
2. The handle: a small, shallow pullback just under the rim as the last sellers exit.
3. The breakout: a close above the rim (resistance) resumes the uptrend.

Trade plan:

• Entry: a close above the rim, or a retest of the rim as support.
• Stop: below the handle low.
• Target: project the depth of the cup above the breakout.

Quality checks: the cup should be rounded (a sharp V is not a cup), the handle should be shallow and short, and volume typically dries up in the handle and expands on the breakout.

Rectangle (range)

Price moves sideways between a flat support and a flat resistance. Buyers and sellers are in balance.

Two ways to trade it:

1. Range trading: buy near support and sell near resistance, with stops just outside the range. It works while the range holds, so keep the position small and use a firm stop.
2. Breakout trading: wait for a closing break beyond either side and project the range height as the target.

Common mistakes

• Calling any dip a "cup" without a rounded shape and clear rim.
• Entering inside the handle before the rim breaks.
• Range trading right after a breakout has started.
• Placing stops exactly at the range boundary rather than a little outside.

Related guides

• Bull and bear flag patterns
• Chart patterns cheat sheet
• Support, resistance and liquidity
• How to write a trade plan

Frequently asked questions