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How To Trade the Cup With Handle Family of Trades

Article Seven In This Series

The Inverted Cup with Handle will begin to appear after the stock market has been in a Down Trend for a period of time.  The Down Trend, before an Inverted Cup with Handle is formed will, in most cases, be shorter than the Up Trend prior to a Cup with Handle formation.  As stated earlier, bear markets tend to move faster and be more volatile.  They tend to be of much shorter duration then the average bull market, lasting only a few months.  In some cases, such as during the Dot.Com Bubble bear market, which lasted from March 2000 until September 2002?  Although this market wiped out thousands of companies, some were strong enough to hold on until the stock market could turn around.  During this period I developed the Inverted Cup with Handle indicator that worked in a bear market just the opposite of the Cup with Handle in a bull market.

(Mouse Over Chart for Larger View)

The above chart shows how the typical Inverted Cup with Handle is traded using the CupTrade Strategies©.  It offers the knowledgeable trader the opportunity to make a low risk trade in a bear market, rather than setting on the sidelines waiting for the next bull market.  Many long side traders will hang onto their positions riding the stock market down, getting out when they can’t stand the pressure any longer, and losing most if not all of their capital.  It is quite common for stock markets to go through up and down cycles.  When you learn to trade the trades I outline in these articles during the Cup with Handle Cycle you will be able to quickly identify the phase we are in and make the appropriate trade.

(Mouse Over Chart for Larger View)

In both of the above trades, the Inverted Cup with Handle Trade was followed by the DownTrend Trade when the stock market showed it wanted to go lower.

It took years of research and development to perfect all ten strategies.  The key discovery in this process was the Inverted Cup with Handle.  At the end of the Bear Market in August and September 2002 there were numerous Inverted Cup with Handle setups that began failing.  In other words instead of breaking out to the downside like a normal setup would do they began going up.  At this point I remembered what traders were doing with the Cup with Handle Patterns that failed in March 2000 when the dot. Com bubble began to burst.  After breaking out these stocks would reverse back below the pivot point trendline and traders were taking a short position.  Now in August 2002 the Inverted Cup with Handle was doing the same thing, except the stocks were going up.

We have gone through several significant bear markets since that time and in every case the same thing has taken place.  Over time it was easy to see that there were three things the Inverted Cup with Handle setup would do when the stock market changed from bearish to bullish.  These three trades make up the Up Transition Phase of the Cup with Handle Cycle which will discuss in the next Article.