The inverse cup and handle is a bearish continuation or reversal pattern that mirrors the bullish cup and handle formation. It consists of a rounded top (the inverted cup) followed by a brief upward consolidation (the handle). The pattern indicates that buying attempts fail to sustain higher prices, and the handle's upward drift represents a final weak rally before sellers take control, breaking price below the handle's support.
The inverted cup forms a rounded top as buying momentum gradually fades. The handle is a small upward-sloping consolidation that follows the cup formation. Volume typically declines during the handle phase as conviction wanes. The breakdown occurs when price falls below the handle's lower boundary. The measured move target equals the depth of the cup projected downward from the breakdown point. The pattern gains significance when it forms below major resistance or at the end of a relief rally within a downtrend.
Enter short when price breaks below the lower boundary of the handle with volume expansion. Wait for a retest of the broken handle support as new resistance for a lower-risk entry. Confirm with momentum indicators turning bearish and divergence during the handle formation. Enter when the breakdown candle is larger than recent range candles, indicating conviction.
Target the measured move — the cup depth projected from the handle breakdown point. Stop above the high of the handle — if price reclaims the handle, the pattern is invalidated. Partial profits at the first significant support level. Exit if selling pressure diminishes and the breakdown stalls above the target.
4H, Daily, Weekly
The inverse cup and handle is most reliable when it forms within an existing downtrend, serving as a continuation pattern. When it forms at the top of an uptrend, it can signal a major reversal but requires additional confirmation from volume and momentum. The handle should be relatively shallow and short in duration compared to the cup — an oversized handle suggests the pattern may be morphing into a different formation.
Measured move projections use the length of a prior price swing to forecast the target of the next swing in the same direction. The technique assumes market symmetry — that the second leg of a move will approximate the distance of the first leg. Measured moves apply to impulse waves, corrective patterns, and chart pattern breakouts, providing objective price targets that remove subjectivity from exit planning.
Double tops and double bottoms are two-touch reversal patterns that form when price tests the same level twice and fails to break through. A double top signals bearish reversal after an uptrend, while a double bottom signals bullish reversal after a downtrend. The pattern is confirmed when price breaks the support or resistance level formed between the two peaks or troughs.
The head and shoulders is one of the most reliable reversal patterns in technical analysis. It consists of three peaks — a higher central peak (the head) flanked by two lower peaks (the shoulders) — connected by a neckline drawn across the reaction lows. A break below the neckline confirms the reversal, with the measured target equal to the distance from the head to the neckline projected downward from the breakout point.
Rising and falling wedges are converging trendline patterns where both support and resistance slope in the same direction. A rising wedge (both lines slope upward, converging) is typically bearish, while a falling wedge (both lines slope downward, converging) is typically bullish. Wedges differ from triangles because both trendlines slope in the same direction rather than converging symmetrically.