CupWatch Products

How To Trade the Cup With Handle Family of Trades

Article Six In This Series

There will be a number of Cup with Handle formations that will fail when a Bull Market comes to an end.  Bullish strategies will not work in anything other than a good Bull Market.  The Cup with Handle is no different.  To try to make it work will lead to disaster and cause you to lose a great amount of money.  The Down Transition Phase of the Cup with Handle Cycle, for me, is the most difficult to successfully trade.  At the beginning of this phase the stock markets can be extremely volatile, many times kicking trades out the same day they are entered.  Circumstances that caused the stock market to go south have a lot to do with volatility.  The price will drop rapidly during this period so it is necessary to be watching and be ready for what is coming.  With the knowledge I am presenting in this section you will be able to catch some strong quick gains. 

Remember the trades we use in this phase, the CHandle Trade, the CBounceOff Trade, and the ReversedCWH Trade are Bearish trades even though they are derived from the Cup with Handle which of course is a Bullish Trade.  Since they are Bearish trades we always enter them by Shorting the stock.  For those of you that are not knowledgeable in Selling Short, it is how we can make money when the Stock is going down.  Basically we Sell the stock to Open a position with anticipation of Buying it back later at a lower position to close out the trade.  The difference between what we Sold it at and what we Bought it at is our profit.  Of course if it goes up after we Sell it we will lose money when we buy it back at a higher price.  For this reason care MUST BE exercised when trading in this manner as the stock can go up indefinitely.  In reality when we use proper Stop-Loss techniques there is no difference from trading the long side.  In all the trades where we Short stocks we will be using our strategies that automatically take care of setting proper stops.

Criteria used for Bearish Trades are somewhat different than those used for the Cup with Handle.  Volume isn’t that critical when entering a position.  The Stop-Loss percentage is still set to 7% or 8% depending on trader preference.  We still only want to trade companies with good fundamentals.  A good company will go down just as fast as a bad one in a Bear Market.  Of course Accumulation (Relative Strength) will drop off rapidly as many institutional traders will be exiting. 

The CHandle Trade is entered as soon as the Cup with Handle is formed when the stock market has turned bearish.  A good number of stocks will go ahead and complete the Cup with Handle formation even though the stock market has already turned.  It is almost certain these will fail and immediately take off to the downside.  This is a great trade for the savvy Cup with Handle trader.

The following three charts are typical trades using the CHandle Strategy during the DownTransition Phase.  The first chart shows three trades.  The first trade is the CHandle Trade and the next two use the DownTrend Trade.  These show how the CupTrade Strategies will automatically trade the CHandle Trade for good low risk gains.  The second chart shows the CHandle Strategy executing two trades.  The first is the CHandle Trade and the second is the DownTrend Trade.  The third chart shows a single trade with just the CHandle Trade.  Study these trades and again ask yourself if you could do this well.

(Mouse Over Chart for Larger View)

(Mouse Over Chart for Larger View)

(Mouse Over Chart for Larger View)

The CBounceOff Strategy is used when the Price is in the Handle of a Cup with Handle pattern as the stock market enters a down turn.  The Handle looks like it is ready to breakout above the Pivot Point TrendLine but because the stock market has turned it will bounce off the TrendLine and go down sharply.

(Mouse Over Chart for Larger View)

The next chart is an excellent example of the CBounceOff Trade during the Down Transition Phase of the Cup with Handle Cycle.  It provided a 20% Gain in less than 45 days.  Learn how to look for these as they are Low Risk Trades when you know what you are doing.  By the time you finish studying these Articles you will be well on your way to being a knowledgeable Cup with Handle Family Trader.

(Mouse Over Chart for Larger View)

The third and final Strategy in the DownTransition Phase is the Reversed Cup with Handle Trade.  In this trade the Cup with Handle Pattern fails shortly after it breaks out above the Pivot Point TrendLine.  Several of my clients alerted me to this in March of 2000, the Cup and Handle was failing as soon as they broke out and traders were beginning to Short the Stocks that did so.  Of course this was the very start of the worst Bear Market in our history.  Shortly after this I begin developing the Inverted Cup with Handle Indicator.  Once I completed it and started using it things began to come together as you will see in future articles.  The next two charts will illustrate how this strategy works.

(Mouse Over Chart for Larger View)