A stock market handle is one part of the “cup and handle” trading pattern mapped on the stock’s bar chart over a specific period. Cup and handle bar charts typically measure a stock’s trading patterns for at least seven weeks but can measure these patterns for a period up to 65 weeks.
The cup part of this pattern forms a U-shape on the bar chart and looks like the side of a coffee cup with the handle facing right. The top of the left side of the cup pattern typically marks the stock’s peak trading price, often referred to as the first peak. In this pattern, the stock price begins a downward trend after its peak price. This trend forms the left side of the cup pattern. Once the price levels off, it forms the bottom of the cup. As the stock price begins to rise and trading volume begins to increase, it forms the right-hand side of the cup and creates the second peak.
When the stock price reaches the second peak, the price tends to be near what it was when it was at its first peak. Investors who bought the stock at its first peak price and held it through its downward trend will begin selling their shares in an attempt to break even on their investment. The selloff causes an overall decline in the stock’s price. This decline forms the handle in the cup and handle pattern. When the selloff begins to level out, it is the end of the cup and handle pattern and can signal a breakout.
A breakout in the cup and handle pattern of a stock is when the stock price increases by at least .125 percent of its second peak or handle peak price and trading volume increases. Investors typically measure a breakout due to a trading volume increase if there has been at least a 50 percent increase in average trading volume over an average of 50 days. Investors also refer to a breakout as the stock’s pivot point.
Investors often see a stock with a cup and handle pattern as a positively trending stock and consequently analyze these patterns to look for “buy” signals. However, cup and handle patterns offer no guarantee that the stock will perform well and result in a return on investment. There are always inherent risks of loss when investing in the stock market, which is why you should research your investment thoroughly before making an investment decision.