Trading Techniques  |  SEP 2007

Trading The Cup & Handle by Larry Swing

Trading The Cup & Handle by Larry Swing Guidelines For A New Classic...Cup & handle patterns may be tricky to identify. But if you follow these guidelines you will be able to identify them more easily and accurately. Although it didn’t come from the traditional trading patterns, today the cup & handle pattern is nearly synonymous with the rest of the classics. According to many technical analysts, the classic patterns are the triangle, rectangle, head & shoulders, pennant, flag, double bottom, and double top. These are just a few classical formations that many have come to know. When William O’Neil, founder of Investor’s Business Daily, who turned himself from a modest investor into a multimillionaire, published his book How To Make Money In Stocks, he stated that during his time as an investor, he identified a few price patterns of his own to find successful setups. In his book, he revealed a few of the patterns he identified, coined, and used to make a profit. We’ve all heard about trading patterns, but very few really know the characteristics, let alone how to trade them. The cup & handle pattern usually forms during the late stages of the bull markets, when corrections tend to be deeper. IDENTIFYING CUPS & HANDLES You can see an example of a cup & handle pattern in Figure 1. In many ways, this pattern looks similar to the ascending triangle where if a trendline is drawn from the low of the cup to the low of the handle, it would resemble what you see in Figure 2.

by Larry Swing