CUP & HANDLE PATTERN
The cup is a curved u-shape, while the handle slopes slightly downwards. In general, the right-hand side of the diagram has low trading volume, and it can last from seven weeks up to around 65 weeks.
The cup looks like a Rounding Bottom. The handle, which follows the cup, looks like a typical retracement (for e.g. Wedge, Flag).
The Cup & Handle chart pattern is a bullish pattern. Its bearish counterpart is the Inverted Cup & Handle pattern.
A Cup & Handle pattern is basically a Rounding Bottom following by a pullback. Hence, it marks a period of consolidation in which the bulls take over from the bears gradually.
The last retracement (handle) is the last bearish push. When it fails, we expect the market to rise.
An Inverted Cup & Handle pattern follows a similar logic with a Rounding Top and a pullback upwards.
TRADE with CUP & HANDLE PATTERN
The conservative entry for the Cup & Handle chart pattern is to buy on break-out of the high of the cup. The aggressive entry can take place once the handle pullback fails.
For the Inverted Cup & Handle pattern, you can sell when the market breaks below the low of the cup or when the handle pullback breaks down.
The volume pattern should resemble that of a Round Top / Bottom for both the cup and the handle formations.
For the target objective, measure the depth of the cup and project it from its high (or low for the Inverted pattern).