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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Cup with Handle

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 08/29/2014
17,098 18.88 0.1%
8,408 2.64 0.0%
564 4.26 0.8%
4,580 22.58 0.5%
2,003 6.63 0.3%
YTD
3.1%
13.6%
15.0%
9.7%
8.4%
Tom's Targets    Overview: 08/14/2014
17,300 or 16,700 by 09/15/2014
8,700 or 8,000 by 09/01/2014
575 or 540 by 09/15/2014
4,600 or 4,300 by 09/01/2014
2,050 or 1,950 by 09/15/2014

Written by and copyright © 2005-2013 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.

A cup with handle chart pattern

Cup-with-Handle

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.

CharacteristicDiscussion
Price trendUpward leading to the pattern. Price should rise by at least 30% leading to the cup.
ShapeA rounded turn that looks like a cup with a handle on the right.
U-shaped cupThe cup should be U-shaped, not V-shaped.
HandleThe cup must have a handle on the right.
Cup durationFrom 7 to 65 weeks
Handle duration1 week minimum but usually lasts 1 to 2 weeks.
HandleForms in upper half of cup.
CupCup rims should be near the same price level.

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Cup with Handle Trading Tips

Consult the associated figure on the right.

Trading TacticExplanation
Measure ruleMeasure 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 cupCups 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).
TrendlineIf 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.
BuyBuy when price closes above the right cup rim (point A, and the top horizontal red line).
WarningPrice tends to rise 10% or 15% and then reverses, heading down. Sell quickly or you may take a loss.
StopThe handle low (point C) is a good place to put a stop. Raise the stop as price rises.
ContinuationsPatterns that act as continuations of the price trend substantially outperform those acting as reversals.
ThrowbacksThrowbacks hurt performance.
Short handleStocks with handles shorter than the median 23 days show superior post breakout performance.
Volume shapeCups with U-shaped volume tend to perform better post breakout.
Cup with handle measure rule
The Measure Rule

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Adam & Adam double top chart pattern example

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

 

 

 

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Other Cup with Handle Examples

See Also

Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. Your dreams have been answered. I'm here.