What it looks like
An upside down U: price drifts up, rounds over and returns to about the level where the rise began. That level is the rim. Then a small, short bounce near the rim forms the handle. The pattern completes when a candle closes below the rim. The cup's depth is from its top down to the rim.
What it means
The slow, rounded turn shows sellers gradually taking over. The handle is a small rally where the last hopeful buyers step in. Patient sellers absorb them, and once price closes below the rim there is little left holding it up. It is a bearish continuation after a long pause in a fall.
How to trade it
- 1
Mark the rim (the low at both sides of the cup), the top of the cup and the high of the handle.
- 2
Confirmation: a candle closes below the rim.
- 3
Entry: sell at that close.
- 4
Stop: above the handle's high. Example on US30: rim at 46,800, cup top 47,300 (500 points), handle high 46,950. Sell the close at 46,780, stop at 46,970, a 190 point risk.
- 5
Target: the cup depth below the rim, about 46,300.
A close above the high of the handle.
Where it works best
On 4 hour to weekly charts after a prior fall, where the rounded top forms under resistance.
WickSpeak finds inverted cup and handle patterns automatically and labels them on the candles that made them. Each note covers what it is, how to trade it and that a close above the handle proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Treating a sharp spike as the cup; it should be a slow, rounded turn.
- Selling inside the handle before the rim breaks.
- Using a handle that bounces deep into the cup, which weakens the case.
Related patterns
Questions traders ask
Is the inverted cup and handle bearish?
Yes. It is the bearish mirror of the cup and handle and signals a likely move lower once the rim breaks.
Where do I put the stop?
Above the high of the handle. A close above there means buyers have pushed back harder than the pattern allows.
What is the target?
The usual target is the depth of the cup, from its top to the rim, measured down from the rim.
Is it the same as a rounding top?
The cup part is a rounding top. The handle and the break below the rim are what turn it into a tradable inverted cup and handle.