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How To Trade the Cup With Handle Family of Trades

Article Four In This Series

What I write about the Cup with Handle will also apply to the Inverted Cup with Handle except in reverse with some slight differences that I will explain as we go along.  At the end of a strong Bull Market there will be a good number of Cup with Handle Patterns formed that are going to fail.  Likewise at the end of a strong downturn there will be several Inverted Cup with Handle Patterns that will fail to do what they are supposed to do, that is break down and go down.  Instead they will turn to the upside.  When you learn how to watch for these and recognize them when they come along you will be well on your way to being a successful trader.  Several factors must be considered in order to predict the type of failure we must look for.  It is these different types of failures that we will be trading to make good profits.   “How can you make money on something that is failing?”  We don’t care which way the stock market is going, up or down, we can trade it as long as a Cup with Handle or Inverted Cup with Handle has formed.  Understanding this paragraph will go a long way toward grasping the remaining of this series.

These patterns fail because the overall stock market has turned around.  The type of trade we make depends on where the development of the pattern is at the time of the failure.  An extremely important factor for you to know is that the Pivot Point TrendLine is a powerful Support/Resistance Line.  Once formed this line can affect the price movement for years to come, REMEMBER THIS.  There are three things a stock will do when the market turns around.  If the price has already broken through the Pivot Point TrendLine it will reverse and cross back over the line in a few days.  We call this the REVERSED TRADE and it can be powerful in about all cases.  The second thing is the price while in the Handle will come up to the Pivot Point TrendLine but instead of breaking across the line it will appear to Bounce Off the line because the stock market has turned.  We call this the BOUNCE OFF TRADE.  The third thing that will happen is just as soon as the pattern is completed it will fail and immediately takeoff in the direction the Handle goes to deplete weak investors.  Instead of moving back toward the Pivot Point TrendLine it will keep moving away from the RightSide of the Cup.  We call this the HANDLE TRADE.  The STRONGER the new Stock Market the better the trade will be.

This provides us with six (6) additional strategies.  Three (3) associated with the Cup with Handle and three (3) with the Inverted Cup with Handle.  When we add the Cup with Handle and Inverted Cup with Handle we have a total of eight (8) different strategies that make up the “Cup with Handle Family”.  There are two parents in this family, the Cup with Handle and the Inverted Cup with Handle.  Each parent has three offspring associated with the different situations outlined in the previous paragraph.  It is important for you to know that the offspring will trade in the opposite direction from the parent.  For instance the offspring from the Cup with Handle will be Bearish Trades whereas the Cup with Handle is a Bullish Trade.  Likewise the offspring from the Inverted Cup with Handle will be Bullish while the Inverted Cup with Handle is Bearish.  Remember these offspring came about because the parent failed to perform in a normal manner.  Please note the makeup of the Family in the following paragraph.

Introducing The Cup with Handle Family Of Trades

1st Parent – Cup with Handle Trade
OffSpring     –   CHandle Trade  C – Means it is associated with the Cup with Handle.

CBounceOff Trade

ReversedCWH Trade

2nd Parent – Inverted Cup with Handle Trade
OffSpring      -  IHandle Trade   I – Means it is associated with the Inverted Cup with Handle.

IBounceOff Trade

ReversedInvrtCWH Trade

When we break the family into Bullish Trades and Bearish Trades we have the following:

BULLISH TRADES

Cup with Handle Trade
IHandle Trade
IBounceOff Trade
ReversedInvrtCWH Trade

BEARISH TRADES

Inverted Cup with Handle Trade
CHandle Trade
CBounceOff Trade
ReversedCWH Trade

Each trade made must be preceded by either a Cup with Handle or Inverted Cup with Handle formation.  When a trade is made it will be after the stock has been in a consolidation period and is breaking out of a Trend.  Even in a strong uptrend the stock will take a small breather and if the trade is taken out on one of these corrections we need a way to get back in if it wants to continue the trend.  To accomplish this we have added two additional strategies, the UpTrend Trade and the DownTrend Trade.  This gives us a total of Ten (10) in our complete list of strategies.

THE CUP WITH HANDLE TRADING CYCLE

It wasn’t until I discovered the Cup with Handle Family traded throughout a Cycle that the total picture took shape.  This Cycle consists of Four (4) Phases which I relate to the four seasons of the calendar year.

The Four Phases

1. The Bull Market Phase  -  Summer
2. The Down Transition Phase  -  Fall
3. The Bear Market Phase  -  Winter
4. The Up Transition Phase  -  Spring

Trades Associated With Each Phase

Bull Market Phase

Cup with Handle Trade
UpTrend Trade

DownTransition Phase

CHandle Trade
CBounceOff Trade
ReversedCWH Trade

Bear Market Phase

Inverted Cup with Handle Trade
DownTrend Trade

Up Transition Phase

IHandle Trade
IBounceOff Trade
ReversedInvrtCWHTrade

Please take time to digest the information presented in this article.  It may seem a little fuzzy at first but in the following articles I will provide information to reinforce your learning.  Having a good basic knowledge of what I have presented to this point will be very beneficial.  In the following articles, starting with Article 5, I will use examples of trades in each Phase to show how they all work together.