Cup With Handle Pattern

The most common stock chart pattern is known as the cup-with-handle pattern.  Learning to recognize this most basic pattern can help traders time a profitable entry into the market, and also know when to avoid losses.

Some of the characteristics of the cup pattern include:

  • Cup patterns can last between 7 to 65 weeks (most are 3-6 months).
  • Usual correction from peak to trough is 12-15%, but as much as 33%.
  • Look for ~30% increase in price in the prior uptrend.
  • Bottom part of cup should be rounded U, not a V, so as to give enough time for a proper amount of time to shake out weak holders and is more likely to produce strong owners unlikely to sell at the next advance.

  • Cup patterns may be 1.5-2.5 times the market average corrections
  • Corrections exceeding 2.5x the average indicates a *weak* pattern that may fail.  Example: JDSU in 2000.
  • Avoid patterns correcting more than 40-50%.  It would take an unlikely 100% gain to recover from a 50% loss.  Statistics show shareholders would most likely unload shares before an 80% gain. Anomoly: Sea Containers 1975 increased +554%

Characteristics of the Handle Area

  • Formation of the handle area can take more than 1-2 weeks.
  • Has a downward price shift, with volume drying up near the lows in the handle’s pullback phase.
  • Cups w/out handles have a higher failure rate, but high momentum stocks can advance without proper formation of the handle.
  • Typically takes place in the upper right 8-12% of the prior gains, and contained above the stock’s 10-week SMA.  Below this point, the pattern is prone to failure.
  1. David crowley
    November 28, 2011 at 3:27 am

    We should talk sometime. I trade stocks professionally and office in mequon. I know some guys at stark and have followed them for awhile. My email is dcrowleyjr@wi.rr.com

    • November 28, 2011 at 6:11 pm

      I will be in touch. What times work well for you?

  2. David crowley
    November 28, 2011 at 3:28 am

    Enjoyed your site

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