Option Investor
Glossary

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Cup and Handle

A Cup and Handle pattern obtained its name because it resembles a coffee cup in appearance. Following a rally, a stock may begin to decline until it reaches a support level and enters into a basing period. This forms the left-hand side and bottom of the cup. Then the stock begins to ascend and we see increase in the volume level. This forms the right hand side of the cup. Once the stock reaches the previously established highs that it was trading at prior to falling, we may see some selling pressure from the shareholders that did not sell their positions the first time. This may result in a small pullback and thus the handle of the cup is formed. Because there has been strong volume backing the recent ascent, handles generally do not dip too far into the cup and it usually does not take long for the stock to resume its bullish trend.