People have said that the best way to prepare for where the future will take you is to examine all the places you have been in the past. There’s some comfort in knowing that history tends to repeat the actions of the past, and that although the surroundings might be different, the experiences will be similar. Technical analysis is based on the assumption that stocks also have a tendency to repeat history, and by charting stock behavior and looking for patterns like the cup and handle in the data, investors can make more accurate predictions about what is coming up next.
Technical analysts refer to the cup and handle chart as a bullish continuation pattern, which means that although the current upward trend seems to have reached a plateau or even moved downward, it will eventually continue in an upward direction again once the pattern is has been completed.
Once you spot a cup and handle for the first time, you’ll find it easy to see why it has its name. When completed, this pattern forms what looks like the shape of a cup, curving downward out of what seems like a strong upward trend. After the u-shaped cup has been completed, the handle manifests itself as a downward diagonal movement in price. This downward movement will be short lived however, because once the price gets enough momentum to rise above the resistance lines that formed in the handle, the original upward movement will continue. This pattern is not very quick for form, and it can take from several months to more than a year to become obvious.