V16:11 (543-545): Traders’ Tips

TRADESTATION/SUPERCHARTS

Our focus this month in Traders’ Tips is on the cup-with-handle chart pattern that Rick Martinelli and Barry Hyman explored in the October 1998 STOCKS & COMMODITIES in “Cup-with-handle and the computerized approach.” When all the criteria fall into place, this chart pattern really seems to pick out some nice bullish breakouts. I must caution you, though, that as with most chart patterns, the cup-with-handle formation is subjective. In other words, the pattern defined for the computer program may not recognize some legitimate cup-with-handle formations or may display a pattern where one does not truly exist. Thus, in setting up the EasyLanguage indicator below, I have tried to strike a balance between the two extremes. The name of the EasyLanguage indicator described here is “cup & handle.” When the indicator identifies a cup-with-handle formation, it will place the following characters on the chart for identification of the key points:

K: Beginning of the setup phase

LS: Left-hand side of the cup formation

RS: Right-hand side of the cup formation

B: Bottom of the cup.

Once the key points have been identified, the indicator will also plot a horizontal line at the level of the right-hand side of the cup. The horizontal line will continue to plot until either the upward price breakout occurs or the close falls below the acceptable level. If an upward price breakout occurs, a red dot will be plotted at the close (Figure 1). This indicator will generate an alert for two situations. The first is when a valid cup-with-handle formation has been identified. The second is when a price breakout above the right-hand side of the cup formation has occurred. “AlrtLen,” the only input for this indicator, determines the number of bars after the occurrence of either of the two above criteria that an alert will be generated.