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Penny Stock Basics

Cup and Handle Chart Pattern: What It Is and How to Trade It

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Written by Timothy Sykes
Updated 9/17/2023 17 min read

The cup and handle is a technical chart pattern. It was first defined by William O’Neil in his classic book “How to Make Money in Stocks.” O’Neil called it a “cup with handle” pattern. He had clear criteria defining this pattern. I’ll cover that in this post. But fair warning…

I get a lot of questions about chart patterns. Some students come into the Trading Challenge with preconceived ideas about patterns. Sometimes that’s a bad thing because my top students and I trade penny stocks based on volatility. 

It’s not that there aren’t penny stock patterns — there are. Watch my “Pennystocking Framework Part Deux” DVD. It explains the entire seven-step framework we use to make smarter trades. 

It’s important to know the classic chart patterns — and recognize them. But understand this is about giving you a broad education. It’s like stock trading 101.

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What Is a Cup and Handle?

It’s a continuation pattern. It’s pretty simple: the pattern looks like a cup with a handle from the side. Here’s an example from 2019…

Cup and Handle Chart Example: Rare Element Resources Ltd. (OTCQB: REEMF)

Cup and Handle Chart Example: Rare Element Resources Ltd. (OTCQB: REEMF)
REEMF chart: 2019 1-year, cup and handle — courtesy of StocksToTrade.com

Before I go any further … Some people will look at the chart and say, Tim, that doesn’t fit William O’Neil’s perfect cup and handle description.” Right. Neither did any of the chart examples in his book.

Remember, trading is not an exact science. Let’s get into the cup and handle pattern as defined by William O’Neil. 

Cup and Handle Chart Pattern

Here’s the basic definition of a “cup with handle” according to O’Neil in “How to Make Money in Stocks.” (A worthy book to add to your collection. I did a book review in my “Tim Raw” DVD and mentioned this book. It’s a classic.)  

“Cup patterns can last from 7 weeks to as long as 65 weeks, but most of them last for three to six months. The usual correction from the absolute peak (the top of the cup) to the low point (the bottom of the cup) of this price pattern varies from around the 12% to 15% range to upwards of 33%. A strong price pattern of any type should always have a clear and definite price uptrend prior to the beginning of its base pattern.” 

— William J. O’Neil, “How to Make Money in Stocks: A Winning System in Good Times and Bad,” Fourth Edition (p. 88). McGraw-Hill Education. Kindle Edition.

O’Neil then goes on to say that sometimes the cups are deeper — even 50% to 75%. He also talks about cups without handles and cups with uptrending handles. I mention this for three reasons…

What You Need to Understand About the Cup and Handle Chart Pattern

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First, many online sources give precise definitions of the cup and handle. For it to be a cup and handle, the stock has to do this, then this.” Blah, blah, blah. That’s a bunch of blowhards trying to get you to follow them. They probably haven’t even read the book.

Second, O’Neil basically says it’s not an exact science. He observed hundreds of variations — both successful and failed cup and handle patterns.

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Third, in the book, O’Neil talks about other important indicators when you spot a potential trade. And not just in other parts of the book. It’s right there on the same page with the cup and handle pattern (emphasis mine):  

“You should look for at least a 30% increase in price in the prior uptrend, together with improving relative strength and a very substantial increase in trading volume at some points in the prior uptrend.”

Here’s another example. It’s not textbook cup and handle, but the pattern is still obvious.

Plug Power Inc. (NASDAQ: PLUG)

Cup and Handle Plug Power Inc. (NASDAQ: PLUG)
PLUG chart: 1-year to July 2020, cup and handle pattern — courtesy of StockToTrade.com

I can’t emphasize enough that pattern/price action is only ONE of my seven indicators. (You’ll find the seven indicators on my “Trader Checklist Part Deux” DVD.)

Example of How to Use the Cup and Handle Chart Pattern

Again, I have my favorite patterns to trade. So I don’t go on the hunt for the cup and handle pattern. But — and this is super important — a lot of traders do. And that means it can be a self-fulfilling prophecy. 

In other words, if enough traders see the cup shape, they can get interested. Then they see the pullback handle. And then it can turn into a breakout just because so many people believe it will happen. They all buy together and drive up the price.  

Cup With Handle Signal

The cup with handle signal is another way of saying the pattern is a bullish chart pattern. The pattern signals technical traders about a potential breakout. Technical traders often buy right when the stock climbs back to the pivot price. (The pivot is the top of the handle. Keep reading to see what I mean.) 

In the case of an inverse cup and handle, it’s bearish. It signals a potential breakdown. 

Cup and Handle Pattern Failure

Again, it’s not an exact science. Patterns fail all the time and for a variety of reasons. That’s why it’s essential to plan your trades and follow rule #1: cut losses quickly. Let’s take a look at a chart with several examples. 

Interestingly, this chart shows both successful and failed patterns. The stock was featured on my Top Penny Stocks to Watch for July 2020 list. 

Failed Cup and Handle Example: ElectraMeccanica Vehicles Corp. (NASDAQ: SOLO)

Failed Cup and Handle Example: ElectraMeccanica Vehicles Corp. (NASDAQ: SOLO)
SOLO chart: June 29–July 2, cup and handle — courtesy of StocksToTrade.com

First things first … This doesn’t fit the “7 to 65 weeks” cup definition I quoted from O’Neil’s book above. This pattern can happen in shorter time frames, too. 

In the penny stock niche, it’s important you don’t get too attached to traditional or long-term patterns. That’s not to say they don’t happen. It’s just that my seven-step framework is more accurate for this niche. (Again, refer to “PennyStocking Framework Part Deux.”)  

On the chart above, I’ve drawn three arcs to represent cups. The small cup on the left is messy. And it’s a good example of a cup and handle pattern failure. The bounce out of the handle was very small before continuing downward. 

Then the stock formed a nice cup from the high of day on June 30 through July 1. Looking at the chart, you could argue the pullback at the end of the day on July 1 is a handle… 

But look at the bigger arc. That shows the entire pattern more clearly. It’s a kind of double cup, a clear handle, and a clean breakout. 

Structure of the Cup and Handle Technical Pattern

The let’s look at the structure of the pattern with this example…

Cup and Handle Structure Example: Night Food Holdings (OTCQB: NGTF)

Cup and Handle Structure Example: Night Food Holdings (OTCQB: NGTF)
NGTF chart: 1-year to July 2019, structure of cup and handle technical pattern — courtesy of StocksToTrade.com

The following details refer to the numbers on the NGTF chart above: 

  1. Upward momentum. O’Neil said to look for a 30% upward move to the rim of the cup. 
  2. A pullback forming an arc or U shape. The base length can vary — and does. Pure long-term technical traders tend to follow the seven weeks or more rule. You won’t always have that luxury with penny stocks. 
  3. Ramping up to the rim on the right. The great Jesse Livermore called this the high pivot. 
  4. A pullback to form the handle. O’Neil liked a downward handle as opposed to an uptrending handle. His backtesting showed uptrending handles often lead to cup and handle pattern failure. 
  5. Strong upward momentum to breakout above the high-pivot (i.e., the breakout).

(IMPORTANT NOTE: Don’t confuse this with my seven-step pennystocking framework. The numbers don’t represent the same moves.) 

Bullish Cup and Handle Pattern

A bullish cup and handle pattern is what most people are talking about when they say cup and handle. Again, it’s considered a bullish signal for a potential breakout

Bearish Cup and Handle Pattern

Almost every pattern has its opposite. The cup and handle is no different. The easiest way to describe it is that it looks like a teacup turned upside down. 

In other words, look for a roughly 30% downward move, an inverted U-shaped correction, a bounce handle, and breakdown. For me, I look for big panics to dip buy. Sometimes they look like a bearish cup and handle breakdown. But that’s not my focus. 

Cup and Handle Formation in Penny Stocks

Penny stocks are beautiful because they’re so volatile. This means the big moves usually happen much faster than expensive stocks like blue-chips

Not sure how to trade through volatility? Access my NO-COST “Volatility Survival Guide” here. 

One consequence is that patterns tend to speed up, too. Three of the example charts you’ve looked at so far fit the traditional time frame. REEMF, PLUG, and NGTF formed a cup over roughly seven weeks. But SOLO formed a messy cup and handle over only three days. 

Now take a look at an intraday cup and handle… 

Intraday Cup and Handle Example: Polymet Mining Corporation (AMEX: PLM) 

Intraday Cup and Handle Example: Polymet Mining Corporation (AMEX: PLM)
PLM chart: intraday cup and handle, July 1, 2020 — courtesy of StocksToTrade.com

PLM didn’t have a strong breakout from the handle. It was choppy. Again, there are other indicators to consider. For example, the big increase in trading volume. I don’t like choppy stocks — I’m too impatient. But the chart shows how this pattern can form intraday. 

Take a look at another example of a recent runner. This time the cup and handle pattern formed over one day. I wrote extensively about this stock in “The Truth About Promoted Penny Stocks.” 

One-Day Cup and Handle Example: Ideanomics, Inc (NASDAQ: IDEX)

One-Day Cup and Handle Example: Ideanomics, Inc (NASDAQ: IDEX)
IDEX chart: 10-day, June 21–July 2, 2020, 1-day cup and handle — courtesy of StocksToTrade.com

Again, this isn’t an exact science. IDEX formed a decent pattern over one day from premarket trading on June 21. Then it had a clean breakout at the market open on June 22. 

Here’s one final example for your knowledge account…

Penny Stock Cup and Handle Example: American Bio Medica Corp. (OTCPK: ABMC) 

Penny Stock Cup and Handle Example: American Bio Medica Corp. (OTCPK: ABMC)
ABMC chart: 1-year, messy cup and handle pattern — courtesy of StocksToTrade.com

The ABMC chart is an ugly cup and handle. The handle on the chart is also a good example of a bull pennant pattern.


The cup and handle pattern is one of the classics every trader should know. While I don’t actively search for it, I do think you need to recognize it. Why? Pattern recognition can signal a potential trade

Remember, there are a lot of traders who focus on technical patterns. The more you know about how they think, the smarter you can start to trade. Trading is a battlefield — know your opponent.  

Also, remember smart trading requires more than just knowing a pattern. I’ve given you hints in this post about how to trade the cup and handle pattern. But if I gave you only “buy here, sell here” I’d be doing you a great disservice. Why? Because the perfect pattern is rare. 

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You MUST understand the other indicators. You have to be meticulous. Otherwise the market will determine the cost of your education.  

Here’s an example… 

The SOLO chart in this post showed a pretty clean breakout. But do you know why the stock broke out? The catalyst is another important indicator. In the case of SOLO, it was all about sector momentum. The entire electric vehicle sector was going crazy that week. Self-sufficient traders know and use ALL the information at their disposal.

Further Educational Resources

For an introduction to penny stocks, access my FREE penny stock guide here

To learn all the basics of my strategies, read “The Complete Penny Stock Course.” It answers most of the questions new traders ask me.

Use a stock screener designed for trading penny stocks: StocksToTrade. Be sure to check out the Breaking News Chat add-on. (Full disclosure: I helped design StocksToTrade, and I’m an investor.)

And when you’re ready to go deep and become a self-sufficient trader, apply for my…

Trading Challenge

The Trading Challenge is the most comprehensive trading course I offer. You get access to DVDs, archived webinars, and video lessons. 

Plus, each week you’ll get two to four live webinars with some of the top trading mentors in the business. The syllabus takes you from complete newbie through all the strategies I teach. 

Finally, the Trading Challenge chat room is, in my opinion, the best chat room on the interwebs. 

Apply for the Trading Challenge today. (No lazy people allowed. Self-sufficient trading requires a ton of studying, discipline, dedication, and effort.)

What do you think of the cup and handle pattern? Comment below, I love to hear from all my readers!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”