GLOSSARY // Technical Analysis
Cup and Handle
The cup and handle is a bullish continuation pattern: a rounded, U-shaped base (the cup) that returns to the prior high, followed by a smaller, shallow pullback (the handle) before a breakout above the rim. The rounded shape matters — it reflects gradual accumulation rather than the sharp V of a panic reversal.
The classic criteria, from William O'Neil's work: the cup forms over roughly 7-65 weeks and corrects 12-33% deep, the handle drifts down on shrinking volume and stays in the upper half of the cup, and the buy trigger is a breakout above the handle's high on volume 40-50% above average. A common price target adds the cup's depth to the breakout level; a handle that sags into the lower half of the cup voids the setup.
A stock runs to $40, corrects to $30 (25% deep), and spends three months rounding back up to $40 — the cup. It then drifts to $37.50 for two weeks on light volume — the handle, holding the upper half. The breakout above $38 on 60% above-average volume triggers the entry, with the measured target at $38 + $10 = $48 and a stop under the handle low at $37.30, risking about $0.90 against a $10 objective.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.