Written by and copyright © 2005-2014 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition,
pictured on the right, pages 149 to 163. That chapter gives a complete review of the chart pattern, compared to what is described below.
Some regard the cup with handle as a pattern of exceptional ability. My testing says otherwise. If you follow O'Neil's criteria exactly, you'll find less than 9%
qualify. My cups perform nearly as well and substantially more appear. I don't believe O'Neil discovered this pattern but he certainly popularized it in his book,
How to Make Money in Stocks.
Important Bull Market Results for Cup with Handle
Overall performance rank (1 is best): 13 out of 23
Break even failure rate: 5%
Average rise: 34%
Throwback rate: 58%
Percentage meeting price target: 50%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
Cup with Handle Identification Guidelines
The following guidelines are a subset of O'Neil's, but performance is nearly as good and candidates plentiful using this approach.
|Price trend||Upward leading to the pattern. Price should rise by at least 30% leading to the cup.|
|Shape||A rounded turn that looks like a cup with a handle on the right.|
|U-shaped cup||The cup should be U-shaped, not V-shaped.|
|Handle||The cup must have a handle on the right.|
|Cup duration||From 7 to 65 weeks|
|Handle duration||1 week minimum but usually lasts 1 to 2 weeks.|
|Handle||Forms in upper half of cup.|
|Cup||Cup rims should be near the same price level.|
Cup with Handle Trading Tips
Consult the associated figure on the right.
|Measure rule||Measure the height from the right cup lip (A) to the lowest valley
(B) then multiply by the above “percentage meeting price target.” Add the result to the breakout price
(A) to get a target.|
|Inner cup||Cups often form within cups (points 1 and 2), so trade the
inner cup when price rises above the handle (the dashed green line at point 3).|
|Trendline||If possible, draw a down-sloping trendline along the handle peaks. A close above the trendline signals an early buy. I show this as the blue
line extending down from point A on the chart to the right.|
|Buy||Buy when price closes above the right cup rim
(point A, and the top horizontal
|Warning||Price tends to rise 10% or 15% and then reverses, heading down. Sell quickly or you may take a loss.|
|Stop||The handle low (point C) is a good place to put a stop. Raise the stop as price rises.|
|Continuations||Patterns that act as continuations of the price trend substantially outperform those acting as reversals.|
|Throwbacks||Throwbacks hurt performance.|
|Short handle||Stocks with handles shorter than the median 23 days show superior post breakout performance.|
|Volume shape||Cups with U-shaped volume tend to perform better post breakout.|
The Measure Rule
Cup with Handle Example
The above figure shows an example of a cup with handle chart pattern. The rise leading to the cup with handle begins
at C and reaches the left cup lip at point A. Since this is
on the weekly scale, the price chart appears narrower than usual, but price rounds downward forming a cup with the
right cup lip at B. The handle lasts a few weeks before price begins moving up. The next
week, price rockets upward about seven points.
-- Thomas Bulkowski
Other Cup with Handle Examples
Copyright © 2005-2014 by Thomas N. Bulkowski. All rights reserved. Your dreams have been answered. I'm here.