What is the Cup and Handle Pattern?

Key Takeaways

Crypto cup and handle formations are continuation patterns on a price chart which take their name from their teacup-like appearance.

Traders primarily use the cup and handle as a way to go long a coin which has finished consolidating during a broader uptrend.

Placing buy orders at the correct point during a cup and handle breakout provides a good low-risk opportunity to increase gains, even if significant upside has already occurred.

In use since the late 1980s, this chart feature can be applied equally well to traditional assets as to Bitcoin and altcoins.

What is the Cup and Handle Pattern?

The cup and handle, sometimes stylized as ‘cup & handle’ or similar, is the name given to the shape which forms on an asset’s price chart during an attempt to break through resistance.

After dropping from a local high and slowly reversing from a subsequent low, price tends to encounter resistance once it reaches the high a second time. A period of consolidation then ensues as buyers attempt to turn that high from resistance into support — also known as a support/resistance flip.

Depending on its scope, this run-up and consolidation period can resemble a ‘teacup’. 

After consolidation, if successful, price should break through resistance to continue its uptrend. As such, the cup and handle serves as a confirmatory device to go long a particular asset.

Cups and handles can both take on a variety of appearances. They can be deeper (but not overly so), or shallower, but share certain characteristics which distinguish them from other price behavior and help traders recognize the opportunity for upside continuation. 

How to Identify a Cup and Handle Pattern

The cup and handle formation is one of the easier patterns to identify on a price chart thanks to its unique shape.

A large ‘trough’ which forms the cup links to key resistance levels, and to the right, a consolidation forms the handle to complete the pattern.

The cup and handle can form on any timeframe, but its elements should be convincing enough to be visible at a glance. The cup should be suitably deep — at least a third of the previous uptrend — while the handle should not be overly deep itself. 

Certain other formations, while potentially vaguely similar, are thus often not cup and handle patterns. Confusing these with the ‘true’ cup and handle can lead to executing trades on false signals which fail to produce the anticipated price upside.

Crypto Cup and Handle Pattern Example

Cup and handle events are common on Bitcoin and altcoins on both long and short timeframes. More drawn-out formations can attract considerable attention from traders as anticipation of the final breakout builds over weeks or even months. 

In fact, as of 2024, Bitcoin itself is currently printing an extended cup and handle formation on the weekly BTC/USD and BTC/USDT charts, as demonstrated below.

In this instance, the cup section of the pattern starts to form when price reaches new all-time highs in November 2021.

Thereafter bulls lose momentum and fail to reclaim the trend for over a year. This gives rise to the shallow ‘bottoming out’ phase which eventually prints a swing low and reversal. Later on, upside gathers pace and Bitcoin sets up a retest of the all-time highs.

The highs are not broken in one attempt, as seen from the cluster of weekly candles surrounding the key $69,000 level.

Bitcoin then goes on to consolidate and backtest recent gains before again attempting to break through resistance. This produces a classic cup and handle formation with clearly-defined key elements.

Inverse (Bearish) Cup and Handle Pattern

While traditionally a bullish continuation pattern, the cup and handle has a bearish counterpart.

This occurs under the opposite circumstances to the regular cup and handle, but its key aspects, as well as the prerequisites for its formation, are the same.

The chart below shows an inverse cup and handle pattern for the Ethereum ETH/SUDT chart on daily timeframes. Here, downside continuation results from the breakdown below support — the equivalent of the resistance breakout in the bullish formation.

How to Trade the Cup and Handle

Trading the classic cup and handle principally revolves around identifying resistance which will spark upside continuation once broken.

For this, a buy order is placed not at the main resistance level which forms the two sides of the cup, but just above the downward-sloping resistance trend line which marks the upper boundary of the handle. This offers a reduced-risk entry point should resistance fall.

The BTC/USDT chart below shows the key area of interest for longs as a cup and handle pattern completes.

Here, price spends time backtesting previous resistance before eventually continuing higher.

Advantages of the Cup and Handle Pattern

Given the significance of resistance breakouts which cement a successful cup and handle conclusion, the key advantage of the pattern is a lucrative market entry.

This can also work with inverse cup and handle formations when a trader is attempting to go short a given asset.

Cup and handle is a comparatively user-friendly tool for identifying market entry points, as its appearance makes it easy to spot for less experienced traders. Exit points are also soon identified in the event that price breaks down from the handle or fails to execute continuation.

If successful, however, the upside which results from clearing a cup and handle can be significant — despite the entry point coming after price has already rebounded from lows and matched previous highs.

Another key benefit of using the cup and handle to trade crypto is its versatility — the pattern can occur on long or short timeframes and on any given token.

Limitations of the Cup and Handle Pattern

As with any chart pattern, cup and handle does not constitute an all-encompassing foolproof trading signal when it appears.

Simply because a given asset produces ‘classic’ cup and handle characteristics does not guarantee continuation, and blindly trusting in a single chart feature can easily lead to executing losing trades.

Price action can be affected by all kinds of phenomena, and external volatility catalysts might cause an asset to start behaving unexpectedly — something which could cause a cup and handle pattern to break down entirely.

TabTrader thus recommends using one or more trading indicators to back up the signals given by cup and handle. 

These offer insight into aspects such as trading volume — something important to monitor on breakouts and rejections from key levels. Here, the asset’s Relative Strength Index (RSI) — one of TabTrader’s most popular indicators — would be of particular use.

More information on other popular trading indicators can be found here.

Conclusion

The cup and handle pattern is one of the most recognizable chart phenomena for crypto traders. 

Its characteristic appearance, as well as the relatively clear implications it carries, make it a valuable tool for even less experienced market participants.

Those looking for a low-risk entry point may leverage a cup and handle formation which is close to completion in order to go long. Similarly, an inverse cup and handle offers a potentially lucrative short play.

Cup and handle patterns do not always play out, however — unexpected events can disrupt any crypto market, making relying solely on a single chart pattern a risky strategy. 

TabTrader recommends backtesting cup and handle formations with trading indicators in order to gauge the strength of a potential breakout as it happens.

Spot Cup and Handle Patterns Easily with TabTrader

TabTrader has all the tools you need to trade crypto on the world’s biggest exchanges safely and easily — all in one place.

The TabTrader app’s intuitive user-friendly interface makes classic chart formations such as the cup and handle visible at a glance. 

Customizable charts, as well as a whole library of shapes, tools and add-ons, allow TabTrader users to get the most out of the fast-moving crypto markets — whether at home or on the go. 

Available for iOS, Android and Web, the TabTrader app is the world’s most powerful crypto trading tool, ready and waiting for action on your device. Download it here.

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FAQ

Is a cup and handle bullish?

A cup and handle pattern can signal an imminent breakout to new highs when it appears on an asset’s price chart. If confirmed, it offers traders a potentially lucrative low-risk market entry. A similar structure for downtrends — the inverted cup and handle — works the same way for shorts.

What is the cup and handle method?

Crypto traders can use the cup and handle structure to pinpoint when a token is retesting — and has a chance of beating — resistance. Placing a buy order just above the sloping downward resistance line in the ‘handle’ part of the pattern tends to signify a suitable entry point should it be hit.

How reliable is the cup and handle pattern?

Not every cup and handle pattern will resolve to the upside and offer bullish continuation. A large range of factors impact price action, including unforeseen circumstances and events disrupting the trend and causing the cup and handle to break down.